Risk-based selection and unemployment insurance: evidence and implications
- Document type
- Working Paper
- Landais, Camille; Nekoei, Arash; Nilsson, Peter
- Institute for Fiscal Studies
- Date of publication
- 10 October 2017
- IFS Working Paper; WP17/22
- Poverty Alleviation Welfare Benefits and Financial Inclusion, Employment
- Social welfare
- Material type
Download (1.1MB )
This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, this paper provides the first direct evidence for adverse selection in UI and derives its implications for UI design.
This research finds that the unemployment risk is more than twice as high for workers who buy supplemental coverage, even when controlling for a rich set of observables. Exploiting variation in risk and prices to control for moral hazard, this paper shows how this correlation is driven by substantial risk-based selection. Despite the severe adverse selection, it finds that mandating the supplemental coverage is dominated by a design leaving the choice to workers. In this design, a large subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. These findings raise questions about the desirability of the universal mandate of generous UI in other countries, which have not been tested before.
More from Social welfare collection
Related to Poverty Alleviation Welfare Benefits and Financial Inclusion
In June to August 2013 there were 31.3 million people aged 16 to 64 within the UK labour market, comprising of 28.9 million who were in employment and a further 2.5 million who were unemployed. There
This report reveals how the Bank of England and the Confederation of British Industry (CBI), who in the aftermath of the financial crisis of September 2008 were forecasting only a shallow recessions,
This paper argues that job losers exhibit signicant heterogeneity in wealth holdings and in the marginal propensity to consume transitory income. It considers potential sources of this heterogeneity,
The report says that public trust in the benefits system will not be restored until the link between what people have put in and what they get out is improved. Contributory benefits accounted for 41%
Related to Institute for Fiscal Studies
Downloadable white paper defining what organsiational purpose is and how it can help drive performance.
This report considers workplace pension saving amongst people in the early stages of adulthood
This report focuses on different areas of life and how it affects wellbeing