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The Optimal Timing of UI Benefits: Theory and Evidence from Sweden

Author

Listed:
  • Landais, Camille
  • Nilsson, Peter
  • Spinnewijn, Johannes
  • Kolsrud, Jonas
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 indicate 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.

Suggested Citation

  • Landais, Camille & Nilsson, Peter & Spinnewijn, Johannes & Kolsrud, Jonas, 2015. "The Optimal Timing of UI Benefits: Theory and Evidence from Sweden," CEPR Discussion Papers 10701, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10701
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    as
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    Cited by:

    1. Landais, Camille & Kolsrud, Jonas & Spinnewijn, Johannes, 2017. "Studying Consumption Patterns using Registry Data: Lessons From Swedish Administrative Data," CEPR Discussion Papers 12402, C.E.P.R. Discussion Papers.
    2. Aghion, Philippe & Gravoueille, Maxime & Lequien, Matthieu & Stantcheva, Stefanie, 2024. "Tax Simplicity or Simplicity of Evasion? Evidence from Self-Employment Taxes in France," CEPR Discussion Papers 19039, C.E.P.R. Discussion Papers.
    3. Attila Lindner & Balázs Reizer, 2020. "Front-Loading the Unemployment Benefit: An Empirical Assessment," American Economic Journal: Applied Economics, American Economic Association, vol. 12(3), pages 140-174, July.
    4. Den Haan, Wouter & Rendahl, Pontus & Riegler, Markus, 2015. "Unemployment (Fears) and Deflationary Spirals," CEPR Discussion Papers 10814, C.E.P.R. Discussion Papers.
    5. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    6. Den Haan, Wouter J. & Rendahl, Pontus & Riegler, Markus, 2015. "Unemployment (fears) and deflationary spirals," LSE Research Online Documents on Economics 86288, London School of Economics and Political Science, LSE Library.
    7. Philippe Aghion & Maxime Gravoueille & Matthieu Lequien & Stefanie Stantcheva, 2017. "Tax Simplicity or Simplicity of Evasion? Evidence from Self-Employment Taxes in France," NBER Working Papers 24049, National Bureau of Economic Research, Inc.
    8. Marloes Graaf-Zijl & Albert Horst & Daniel Vuuren & Hugo Erken & Rob Luginbuhl, 2015. "Long-Term Unemployment and the Great Recession in the Netherlands: Economic Mechanisms and Policy Implications," De Economist, Springer, vol. 163(4), pages 415-434, December.
    9. Kopiec, Paweł, 2020. "Employment prospects and the propagation of fiscal stimulus," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    10. Wolfgang Nagl & Michael Weber, 2016. "Stuck in a trap? Long-term unemployment under two-tier unemployment compensation schemes," ifo Working Paper Series 231, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    More about this item

    Keywords

    Consumption smoothing; Dynamic policy; Sufficient statistics; Unemployment;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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