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The Value of Unemployment Insurance

Author

Listed:
  • Landais, Camille
  • Spinnewijn, Johannes
Abstract
In the absence of unemployment insurance (UI) choices, the standard approach to estimating the value of UI is to infer it from the observed consumption response to job loss in combination with some assumption on preferences. Exploiting the unique data and policy context in Sweden, we propose two alternative approaches, which we implement and compare to the standard consumption-based approach on the exact same sample of workers. We nd that the drop in consumption expenditures upon job loss is relatively small ( 13 percent), but the marginal propensity to consume (MPC), estimated using variation in local government transfers, is around 25 percent higher when unemployed than when employed. We show that this wedge in MPCs, the focus of our rst approach, reveals a high relative price of smoothing consumption, con rmed by direct evidence on the limited consumption smoothing means available during unemployment. The estimated relative price provides a lower-bound on the value of UI, which turns out to be substantially higher than the consumption-based estimate under standard preference assumptions. Exploiting the UI choices embedded in the Swedish UI system, we also propose a Revealed-Preference approach, which con rms that the average value of UI is large in our setting, but also reveals substantial dispersion in the value of UI, above and beyond the variation in consumption drops.

Suggested Citation

  • Landais, Camille & Spinnewijn, Johannes, 2019. "The Value of Unemployment Insurance," CEPR Discussion Papers 13624, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13624
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    Cited by:

    1. Seibold, Arthur & Seitz, Sebastian & Siegloch, Sebastian, 2022. "Privatizing Disability Insurance," CEPR Discussion Papers 17568, C.E.P.R. Discussion Papers.
    2. Marcela Ibanez & Sebastian O. Schneider, 2023. "Income Risk, Precautionary Saving, and Loss Aversion – An Empirical Test," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2023_06, Max Planck Institute for Research on Collective Goods.
    3. Ferey, Antoine, 2022. "Redistribution and Unemployment Insurance," Rationality and Competition Discussion Paper Series 345, CRC TRR 190 Rationality and Competition.
    4. Kolsrud, Jonas & Landais, Camille & Spinnewijn, Johannes, 2020. "The value of registry data for consumption analysis: An application to health shocks," Journal of Public Economics, Elsevier, vol. 189(C).
    5. Liepmann, Hannah & Pignatti, Clemente, 2024. "Welfare effects of unemployment benefits when informality is high," Journal of Public Economics, Elsevier, vol. 229(C).
    6. Peter Levell & Barra Roantree & Jonathan Shaw, 2021. "Mobility and the lifetime distributional impact of tax and transfer reforms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 751-793, August.
    7. Itzik Fadlon & Shanthi P. Ramnath & Patricia K. Tong, 2019. "Market Inefficiency and Household Labor Supply: Evidence from Social Security’s Survivors Benefits," NBER Working Papers 25586, National Bureau of Economic Research, Inc.
    8. You-Shyang Chen & Chien-Ku Lin & Yu-Sheng Lin & Su-Fen Chen & Huei-Hua Tsao, 2022. "Identification of Potential Valid Clients for a Sustainable Insurance Policy Using an Advanced Mixed Classification Model," Sustainability, MDPI, vol. 14(7), pages 1-22, March.
    9. Rich Ryan, 2023. "Discretionary Extensions to Unemployment Insurance Compensation and Some Potential Costs for a McCall Worker," Risks, MDPI, vol. 11(10), pages 1-39, September.
    10. Mahmoudi, Samir Elsadek, 2023. "Late-career unemployment shocks, pension outcomes and unemployment insurance," Journal of Public Economics, Elsevier, vol. 218(C).
    11. Huang, Po-Chun & Yang, Tzu-Ting, 2021. "The welfare effects of extending unemployment benefits: Evidence from re-employment and unemployment transfers," Journal of Public Economics, Elsevier, vol. 202(C).
    12. Lichter, Andreas & Schiprowski, Amelie, 2021. "Benefit duration, job search behavior and re-employment," Journal of Public Economics, Elsevier, vol. 193(C).
    13. Benjamin A. Olken & Rema Hanna & Phitawat Poonpolkul & Nada Wasi, 2024. "Willingness-To-Pay vs Administrative Hurdles: Understanding Barriers to Social Insurance Enrollment in Thailand," PIER Discussion Papers 223, Puey Ungphakorn Institute for Economic Research.

    More about this item

    Keywords

    Unemployment insurance; Consumption smoothing; Revealed preference; Mpc;
    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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