Kolsrud, Jonas, Landais, Camille, Nilsson, Peter and Spinnewijn, Johannes (2015) The optimal timing of UI benefits: theory and evidence from Sweden. CEP Discussion Papers, CEPDP1361. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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Abstract
This paper provides a simple, yet general framework to analyze the optimal time profile of benefits during the unemployment spell. We derive simple sufficient-statistics formulae capturing the insurance value and incentive costs of unemployment benefits paid at different times during the unemployment spell. Our general approach allows to revisit and evaluate in a transparent way the separate arguments for inclining or declining profiles put forward in the theoretical literature. We then estimate our sufficient statistics using administrative data on unemployment, income and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption determining the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. On average, savings and credit play a limited role in smoothing consumption. Our evidence therefore indicates that the recent change from a flat to a declining benefit profile in Sweden has decreased welfare. In fact, the local welfare gains push towards an increasing rather than decreasing benefit profile over the spell.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://cep.lse.ac.uk/_new/publications/series.asp?... |
| Additional Information: | © 2015 The Authors |
| Library of Congress subject classification: | H Social Sciences > HA Statistics H Social Sciences > HN Social history and conditions. Social problems. Social reform H Social Sciences > HV Social pathology. Social and public welfare. Criminology |
| Journal of Economic Literature Classification System: | 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 |
| Sets: | Research centres and groups > Centre for Economic Performance (CEP) |
| Identification Number: | CEPDP1361 |
| Funders: | Economic and Social Research Council., Sloan Foundation, STICERD, CEP |
| Projects: | NBER grant number 22-2382-15-1-33-003 |
| Date Deposited: | 29 Sep 2015 14:25 |
| URL: | http://eprints.lse.ac.uk/63801/ |
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