Recent Advances in Social Insurance

Paper Session

Saturday, Jan. 7, 2017 2:30 PM – 4:30 PM

Hyatt Regency Chicago, Water Tower
Hosted By: Econometric Society
  • Chair: Nathaniel Hendren, Harvard University and NBER

The Geography of Earnings Dynamics and Inequality in the United States

Magne Mogstad
,
University of Chicago

Abstract

We use income tax records to describe the geography of earnings dynamics and inequality in the United States. Changes in inequality of yearly earnings can arise from changes in the distribution of lifetime earnings (persistent changes) and changes in the stability of earnings (transitory changes). Past research has found increases in both components in the United States over the past several decades. We extend this literature in several ways. First, we document how earnings dynamics and inequality vary across areas within the U.S. Second, we explore the factors correlated with high persistent inequality versus high transitory inequality. Third, we examine to what extent taxes, transfers and the family attenuate earnings instability and earnings inequality in different areas of the United States.

Risk-Based Selection and the Optimal Design of UI

Camille Landais
,
London School of Economics and Political Science
Johannes Spinnewijn
,
London School of Economics and Political Science
Arash Nekoei
,
IIES-Stockhom University
Peter Nilsson
,
IIES-Stockhom University
David Seim
,
Stockholm University

Abstract

This paper provides a simple, yet robust framework to evaluate the time profile of bene- fits paid during an unemployment spell. We derive sufficient-statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits paid at different times during a spell. Our approach allows us to revisit separate arguments for inclining or declining profiles put forward in the theoretical literature and to identify welfare-improving changes in the benefit profile that account for all relevant arguments jointly. For the empirical implemen- tation, we use administrative data on unemployment, linked to data on consumption, income and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that, if anything, the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption affecting the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. In trading off insurance and incentives, our analysis suggests that the flat benefit profile in Sweden has been too gener- ous overall. However, both from the insurance and the incentives side, we find no evidence to support the recent introduction of a declining tilt in the profile.

The Limited Macroeconomic Effects of Unemployment Benefit Extensions

Gabriel Chodorow-Reich
,
Harvard University
Loukas Karabarbounis
,
University of Chicago

Abstract

By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.

Knowledge of Future Job Loss and Implications for Unemployment Insurance

Nathaniel Hendren
,
Harvard University and NBER

Abstract

This paper studies the implications of individuals' knowledge of future job loss for the existence of an unemployment insurance (UI) market. Learning about job loss leads to consumption decreases and spousal labor supply increases. This suggests existing willingness to pay estimates for UI understate its value. But, it yields new estimation methodologies that account for and exploit responses to learning about future job loss. Although my new willingness to pay estimates exceed previous estimates, I estimate much larger frictions imposed by private information. This suggests privately-traded UI policies would be too adversely selected to be profitable, at any price.
JEL Classifications
  • H0 - General