Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design

Landais, Camille

doi:10.1257/pol.20130248

Cited by 131 publications

(158 citation statements)

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“…One important strand of the literature has looked at the relative importance of liquidity and moral hazard, see Chetty (2008), Card, Chetty and Weber (2007) and Landais (2015). Essentially, this approach compares job losers with and without liquid assets to better understand the consumption smoothing benefits of UI.…”

Section: Market Externalities Of Ui Extensionsmentioning

confidence: 99%

Unemployment insurance and the labor market

Zweimüller

2018

Labour Economics

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The existing literature assumes that unemployment insurance (UI) a↵ects the labor market through the job finding rate of eligible workers. I argue that this focus is too narrow. I show evidence for UI e↵ects through three other margins: (i) search externalities; (ii) takeup of other welfare state programs; and (iii) job separations. This suggests that the analysis of optimal UI should take a more comprehensive view of how UI a↵ects the labor market.Keywords: Unemployment insurance, extended benefits, unemployment duration, unemployment inflow, layo↵s, disability insurance, optimal benefits. JEL Codes: J65, J63, J64. * Address: University of Zurich, CH-8000 Zurich, Switzerland; email josef.zweimueller@econ.uzh.ch. This paper was written for the Adam Smith Lecture at EALE 2017, St.Gallen, Switzerland. I want to thank the organizers for inviting me to give this lecture and for the opportunity to present my work in front of this great audience. The research discussed here would not have happened without the energy and enthusiasm of my co-authors. First and foremost, I am indebted to my long-term collaborator Rafael Lalive, who provided invaluable input for this research. With him I started working on the universe of the Austrian social security data (ASSD) in the late 1990s, a data set that many other researchers are using now. Special thanks go to Stefan Staubli with whom I have enjoyed working over the last years and whose expertise and work attitude were of tremendous help in all our projects. The research discussed here benefitted from the energetic input of Camille Landais, who initiated the market externality project. I am indebted to Lukas Inderbitzin who co-authored the paper on program substitution. The paper on UI and job separations is work in progress and I have the pleasure to work with Simon Jäger and Benjamin Schoefer on this project. Over the years, I could rely on the support of engaged and talented research assistants. Particular thanks go to Andreas Kettemann and Philippe Ruh, who were extremely helpful over the last years and who provided decisive input for the empirical evidence presented here. Thanks also to Damian Osterwalder and Dominik Eglo↵ for putting together the tables and graphs of the paper. I also thank Andreas Steinhauer and Andreas Haller for comments on an earlier version of this paper and Johanna Posch for checking the final version.

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Section: Market Externalities Of Ui Extensionsmentioning

confidence: 99%

Unemployment insurance and the labor market

Zweimüller

2018

Labour Economics

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“…This suggests that reforms should possibly increase generosity when the unemployment rate increases, and reduce it during expansions. Similarly Landais (2014) finds that the labour supply response to unemployment benefits is pro-cyclical, while Jung and Kuester (2014) and Mitman and Rabinovich (2014) suggest that unemployment benefits should be raised in the aftermath of a negative shock. Overall, it may be desirable to provide more generous insurance during periods of high unemployment and reduce benefit generosity during periods of low unemployment.…”

Section: The Timing Of Labour Market Reforms Over the Cyclementioning

confidence: 99%

The Unbearable Divergence of Unemployment in Europe

Boeri

Jimeno

2015

SSRN Journal

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“…Layoff responses to UI policy affect the magnitude of the policy-relevant elasticities, but only if moral hazard on-the-job were to be important. In Appendices A and B, we provide and discuss evidence based on the pdf of pre-unemployment wages around a kink in the unemployment policy that indicates that layoff rates do not respond strongly to the unemployment policy in our empirical context.19 See Chetty [2008a[ ], or Landais [2015, for the development of alternative methods, exploiting comparative statics of effort choices, in order to to evaluate consumption smoothing gains. These methods could circumvent the issue of having to make assumptions regarding dynamic selection on risk preferences.…”

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

Kolsrud

Landais

Nilsson³

et al. 2018

American Economic Review

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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 introduction of a declining tilt in the profile.Keywords: Unemployment, Dynamic Policy, Sufficient Statistics, Consumption Smoothing JEL codes: H20, J64 * We thank Tony Atkinson, Richard Blundell, Raj Chetty, Liran Einav, Hugo Hopenhayn, Philipp Kircher, Henrik Kleven, Alan Manning, Arash Nekoei, Nicola Pavoni, Torsten Persson, Jean-Marc Robin, Emmanuel Saez, Florian Scheuer, Robert Shimer, Frans Spinnewyn, Ivan Werning, Gabriel Zucman and seminar participants at the NBER PF Spring Meeting, SED Warsaw, EEA Mannheim, DIW Berlin, Kiel, Zurich, Helsinki, Stanford, Leuven, Uppsala, IIES, Yale, IFS, Wharton, Sciences Po, UCLA, Sussex, Berkeley, MIT, Columbia, LMU and LSE for helpful discussions and suggestions. We also thank Iain Bamford, Albert Brue-Perez, Jack Fisher, Benjamin Hartung, Panos Mavrokonstantis and Yannick Schindler for excellent research assistance. We acknowledge financial support from the ERC (grant #716485 and #716485), the Sloan foundation (NBER grant #22-2382-15-1-33-003), STICERD and the CEP. 1The key objective of social insurance programs is to provide insurance against adverse events while maintaining incentives. The impact of these adverse events is dynamic and so are the insurance value and incentive cost of social protection against these events. As a consequence, the design of social insurance policies tends to be dynamic as well, specifying a schedule of benefits and taxes that are time-dependent. In the context of unemployment insurance (UI), the UI policy specifies a full benefit profile designed to balance incentives and insurance throughout the unemployment spell. Solving this dynamic problem can prove daunting, especially when adding important features of unemployment dynamics involving selection and non-stationarities. Indeed, there seems to be little conse...

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Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design

Cited by 131 publications

References 26 publications

Unemployment insurance and the labor market

Unemployment insurance and the labor market

The Unbearable Divergence of Unemployment in Europe

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

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