Data and Code for: Risk-based Selection in Unemployment Insurance: Evidence and Implications

Principal Investigator(s): View help for Principal Investigator(s) Camille Landais, London School of Economics; Arash Nekoei, IIES; Peter Nilsson, IIES; David Seim, Stockholm University; Johannes Spinnewijn, London School of Economics

Version: View help for Version V1

Name	File Type	Size	Last Modified
ReplicationFiles			03/26/2021 10:10:AM

Project Citation:

Landais, Camille, Nekoei, Arash , Nilsson, Peter, Seim, David, and Spinnewijn, Johannes. Data and Code for: Risk-based Selection in Unemployment Insurance: Evidence and Implications. Nashville, TN: American Economic Association [publisher], 2021. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2021-03-29. https://doi.org/10.3886/E127541V1

Project Description

Summary:

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, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage. Exploiting variation in risk and prices, we show how 25-30% of this correlation is driven by risk-based selection, with the remainder driven by moral hazard. Due to the moral hazard and despite the adverse selection we find that mandating the supplemental coverage to individuals with low willingness-to-pay would be sub-optimal. We show under which conditions a design leaving choice to workers would dominate a UI system with a single mandate. In this design, using a subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate.

Scope of Project

Subject Terms: Adverve Selection; unemployment insurance; Mandate; Subsidy

JEL Classification:
      D82 Asymmetric and Private Information; Mechanism Design
      E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
      J64 Unemployment: Models, Duration, Incidence, and Job Search

Geographic Coverage: Sweden

Time Period(s): 2002 – 2009; 1990 – 2015; 2002 – 2012; 1985 – 2015

Data Type(s): program source code

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V1 [2021-03-29]

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