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The optimal timing of UI benefits: theory and evidencefrom Sweden

Kolsrud, Jonas, Landais, Camille, Nilsson, Peter and Spinnewijn, Johannes (2015) The optimal timing of UI benefits: theory and evidencefrom 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
Divisions: Centre for Economic Performance
Subjects: 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
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
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 29 Sep 2015 14:25
Last Modified: 19 May 2019 23:21
Projects: NBER grant number 22-2382-15-1-33-003
Funders: Economic and Social Research Council., Sloan Foundation, STICERD, CEP
URI: http://eprints.lse.ac.uk/id/eprint/63801

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