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Optimal Design of Unemployment Insurance: New Theories and Evidence

Paper Session

Friday, Jan. 6, 2017 3:15 PM – 5:15 PM

Hyatt Regency Chicago, Grand Suite 3
Hosted By: American Economic Association
  • Chair: Johannes F. Schmieder, Boston University

The Optimal Timing of Unemployment Benefits: Theory and Evidence From Sweden

Jonas Kolsrud
,
Uppsala University
Camille Landais
,
London School of Economics and Political Science and IZA
Peter Nilsson
,
IIES-Stockholm University
Johannes Spinnewijn
,
London School of Economics and Political Science

Abstract

This paper provides a simple, yet robust framework to evaluate the time profile of benefits paid during an unemployment spell. We derive sufficient-statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits paid at different times during a spell. Our approach allows us to revisit separate arguments for inclining or declining profiles put forward in the theoretical literature and to identify welfare-improving changes in the benefit profile that account for all relevant arguments jointly. For the empirical implementation, we use administrative data on unemployment, linked to data on consumption, income and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that, if anything, the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption affecting the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. In trading off insurance and incentives, our analysis suggests that the flat benefit profile in Sweden has been too generous overall. However, both from the insurance and the incentives side, we find no evidence to support the recent introduction of a declining tilt in the profile.

Unemployment Insurance Generosity and Aggregate Employment

Arindrajit Dube
,
University of Massachusetts-Amherst
Christopher Boone
,
Cornell University
Ethan Kaplan
,
University of Maryland
Lucas Goodman
,
University of Maryland

Abstract

This paper examines the impact of unemployment insurance (UI) on aggregate employment by exploiting cross-state variation in the maximum benefit duration during the Great Recession. Comparing adjacent counties located in neighboring states, we find no statistically significant impact of increasing UI generosity on aggregate employment. Our point estimates are uniformly small in magnitude, and the most precise estimates rule out employment-to-population ratio reductions in excess of 0.5 percentage points from the UI extension. We show that a moderately sized fiscal multiplier can rationalize our findings with the small negative labor supply impact of UI typically found in the literature.

Does Intensive Job Search Assistance Help Job Seekers Find and Keep Jobs?

Lionel Cottier
,
University of Lausanne
Pierre Kempeneers
,
University of Geneva
Yves Fluckiger
,
University of Geneva
Rafael Lalive
,
University of Lausanne, CEPR and IZA

Abstract

We study the effects of intensive job search assistance (JSA) targeted to long-term unemployed in Geneva. In 2006, Geneva randomly assigned job seekers to the program, and we follow them from two years prior to five years after assignment to treatment. Treated job seekers leave unemployment faster, especially around six months after starting intensive JSA. Intensive JSA does not affect the total number of job seekers who ever find a job. However, treated job seekers are more likely to leave employment, especially after one year of employment – the period needed to qualify for unemployment benefits. Intensive JSA shortens both job search duration and employment duration. Neither differences in active labor market programs nor re-employment wages rationalize lower job stability. Intensive JSA may have led job seekers to accept jobs that were less well matched, triggering higher employment loss once unemployment benefit eligibility is re-established. Intensive JSA is expensive, and the short-term employment gains do not compensate for the extra cost.

Front-Loading the Unemployment Benefit: An Empirical Assessment

Attila Lindner
,
University College London
Balazs Reizer
,
Central European University

Abstract

In November 2005, the Hungarian government frontloaded the unemployment benefit path, while keeping the total benefit amount that could be collected over the unemployment spell constant. We estimate the effect of this reform on non-employment duration using a regression discontinuity research design, where we exploit the sharp change in the benefit-path for those who claimed benefit after 1st of November 2005. We find that non-employment duration fell by 1.5 weeks after November 2005, while reemployment wages and the duration of new jobs remained the same. We show that the decrease in non-employment duration was large enough to make the benefit reform revenue neutral. Our welfare evaluation for this reform is positive: frontloading increased job finding, it made some of the unemployed better off, and did not cost anything to the taxpayers.
Discussant(s)
Peter Ganong
,
Harvard University
Jesse Rothstein
,
University of California-Berkeley
Johannes F. Schmieder
,
Boston University
Andrew Johnston
,
University of Pennsylvania
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers