Does providing gig workers with unemployment insurance create a moral hazard?

Non-standard workers doing short-term, flexible jobs are a growing segment of the labour force, which poses difficult questions. Is it good policy to provide unemployment insurance to them? Do people engage in gig work by choice? And should they be rewarded for it? Jonas Kolsrud and Johannes Spinnewijn explore the issue and argue that many gig workers are likely to have few resources other than unemployment insurance when they become jobless

The value and limits of unemployment insurance

This paper reviews some recent findings regarding unemployment and unemployment insurance in particular, drawing on comprehensive administrative data from Sweden. Firstly, it explores the value of unemployment insurance, revealing that individuals value UI more than previously thought. Secondly, it examines the nature of unemployment, demonstrating that long-term unemployment is predictable and challenging preconceived notions on how unemployment can be a trap. Lastly, it explores the possibility of providing choice in unemployment insurance, finding limited adverse selection. Based on these pieces of evidence, we draw implications for the expansion of UI coverage for non-standard workers

Studying consumption patterns using registry data: lessons from Swedish administrative data

This paper measures consumption expenditures using registry data on income and asset holdings in Sweden and illustrates how a registry-based measure can alleviate some critical limitations of traditional survey measures in capturing changes in consumption inequality and consumption responses to shocks. In the construction of our measure, we build on previous work exploiting the identity coming from the household budget constraint between consumption expenditures and income net of savings. We try to improve this measure using more registry information to account for the contribution of both financial and real assets to consumption flows. We demonstrate the power of the registry-based measure to study the relationship between income and consumption inequality, especially at the top of the income distribution. We also exploit the longitudinal dimension to study consumption responses to important life-time events and the different means used to smooth consumption

The value of registry data for consumption analysis: an application to health shocks

This paper measures consumption expenditures using registry data on income and asset holdings in Sweden. We show how a registry-based measure complements traditional survey measures of consumption and can alleviate some critical limitations. We describe the construction of our measure, which builds on prior work and exploits the identity coming from the household budget constraint between consumption expenditures and income net of savings. We demonstrate the value of the registry-based measure to study consumption responses to shocks, also relative to surveyed consumption. In our application to health shocks, we find that Swedish household experience permanent earning drops, but generous social transfers provide substantial consumption smoothing. We document important heterogeneity in consumption responses and the limited role for private means

The optimal timing of UI benefits: theory and evidencefrom Sweden

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

Retirement consumption and pension design

This paper analyzes consumption to evaluate the distributional effects of pension reforms. Using Swedish administrative data, we show that on average, workers who retire earlier consume less while retired and experience larger drops in consumption around retirement. Interpreted via a theoretical model, these findings imply that reforms incentivizing later retirement incur a substantial consumption smoothing cost. Turning to other features of pension policy, we find that reforms that redistribute based on early-career labor supply would have opposite-signed redistributive effects, while differentiating on wealth may help to target pension benefits toward those who are vulnerable to larger drops in consumption around retirement

The optimal timing of unemployment benefits: theory and evidence from Sweden

This paper provides a simple, yet robust framework to evaluate the time profile of benefits 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 implementation, 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 at benefit profile in Sweden has been too generous overall. However, both from the insurance and the incentives side, we find no evidence to support the introduction of a declining tilt in the profile

Consumption Smoothing during Unemployment

A vast literature has investigated how unemployment insurance (UI) affects labor supply. However, the distorting e¤ect of UI on labor supply is to a large extent determined by how well UI bene.ts smooth private consumption, which in turn depends on the resources available to the unemployed. To determine UI.s consumption-smoothing e¤ect, I exploit a kink in the deterministic relationship between previous earnings and unemployment bene.ts. The randomized assignment of bene.ts created by the kink allows me to identify how UI a¤ect the use of private wealth to .nance consumption during unemployment spells. Using Swedish data for 2000 - 2002 I find that a large share of the unemployed actually can consume at the same level as they did prior to the layo¤. I also .nd that loans are of great importance to consumption smoothing as more than half the sample lacks bu¤er savings. This is further emphasized for di¤erent subpopulations. Women, couples, and older individuals holds signi.cantly larger liquid wealth than men and young singles

Precaution and Risk Aversion : Decomposing the Effect ofUnemployment Benefits on Saving

Reduced form estimations of precautionary saving with respect to labor market risk have hitherto failed to consider that a decrease of say unemployment probability or an increase in unemployment insurance (UI) generosity affects saving not only by reducing the expected variance in earnings but also by raising expected earnings. This paper studies the possibility of decomposing the treatment effect of UI on asset accumulation into two parts; one part where more generous UI leads to raised expected earnings and a second part where a more generous UI reduces the expected variation in earnings. The decomposition is applied to rich Swedish register data on both financial assets and debt. UI’s effect on assets is identified with a kinked policy rule in the UI scheme. First, increased UI generosity has a significant effect, both economically and statistically, on asset holdings; a one percentage point increase in UI benefits decrease net financial asset holdings by 1 percentage point. Second, decomposing the total effect UI has on asset accumulation shows that raised expected earnings increase savings while a decreased variation in earnings decrease saving. Not accounting for the effect on expected earnings on saving underestimates the impact UI has on precautionary saving by 70 percent

Consumption Smoothing during Unemployment

A vast literature has investigated how unemployment insurance (UI) affects labor supply. However, the distorting e¤ect of UI on labor supply is to a large extent determined by how well UI bene.ts smooth private consumption, which in turn depends on the resources available to the unemployed. To determine UI.s consumption-smoothing e¤ect, I exploit a kink in the deterministic relationship between previous earnings and unemployment bene.ts. The randomized assignment of bene.ts created by the kink allows me to identify how UI a¤ect the use of private wealth to .nance consumption during unemployment spells. Using Swedish data for 2000 - 2002 I find that a large share of the unemployed actually can consume at the same level as they did prior to the layo¤. I also .nd that loans are of great importance to consumption smoothing as more than half the sample lacks bu¤er savings. This is further emphasized for di¤erent subpopulations. Women, couples, and older individuals holds signi.cantly larger liquid wealth than men and young singles