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The value of unemployment insurance

Landais, Camille and Spinnewijn, Johannes (2021) The value of unemployment insurance. Review of Economic Studies, 88 (6). 3041 - 3085. ISSN 0034-6527

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Identification Number: 10.1093/restud/rdaa086

Abstract

Due to the absence of unemployment insurance (UI) choices, the traditional approach to estimating the value of UI is to infer it from the observed consumption response to job loss under some assumption on risk preferences. Exploiting the rich data and unique policy context in Sweden, we propose two alternative approaches that relax this assumption and we implement all three methods on the same sample of workers. The first approach considers the difference in marginal propensity to consume (MPC) when unemployed versus employed, which allows to identify the difference in prices to smooth consumption in the respective states. The second approach exploits UI choices embedded in the Swedish UI system in a Revealed Preference approach. While the drop in consumption expenditures is relatively small (∼13%), we find that the MPC is around 25% higher when unemployed than employed, translating into a marginal value of transfers that is at least 60% higher when unemployed than employed. This high value of UI is confirmed by our RP estimates and indicates substantial risk aversion given the relatively small drop in consumption expenditures.

Item Type: Article
Official URL: https://academic.oup.com/restud
Additional Information: © 2021 The Authors
Divisions: Economics
Subjects: H Social Sciences > HD Industries. Land use. Labor
JEL classification: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J64 - Unemployment: Models, Duration, Incidence, and Job Search
Date Deposited: 04 Aug 2020 10:36
Last Modified: 05 Jan 2022 08:30
URI: http://eprints.lse.ac.uk/id/eprint/105861

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