Working Paper: CEPR ID: DP18512
Authors: Conny Wunsch; Vera Zabrodina
Abstract: The generosity of social insurance coverage often increases with the beneficiary's age and their contribution time to social security, but existing policies vary considerably. We study the differentiation of unemployment insurance (UI) generosity by evaluating how the insurance-incentive trade-off varies with age and contribution time. We exploit numerous discontinuities in potential benefit duration in Germany. Contribution time in the last three years carries information on job search efforts, as it is associated with lower moral hazard responses and fiscal externality. We find no significant response heterogeneity in age or longer contribution time horizons. Contrasting these gradients with an approximated insurance value for four UI regimes, we document that steepening the potential benefit duration schedule in contribution time and flattening it in age would have increased welfare.
Keywords: unemployment insurance; response heterogeneity; policy differentiation
JEL Codes: J08; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Potential Benefit Duration (PBD) extensions (J32) | Decrease in job search efforts (J29) |
| Potential Benefit Duration (PBD) extensions (J32) | Longer nonemployment durations (J65) |
| Potential Benefit Duration (PBD) extensions (J32) | Increase in UI receipt duration (J65) |
| Potential Benefit Duration (PBD) extensions (J32) | Increase in transfers (H87) |
| Potential Benefit Duration (PBD) extensions (J32) | Fiscal externality of UI (H31) |
| 1% increase in PBD (O49) | Increase in income tax on employed individuals (H31) |
| Contribution time in the last three years (D64) | More informative predictor of UI responses (C29) |