Measuring Unemployment Insurance Generosity

Abstract

In this paper, we develop a methodology to summarize the various policy parameters of an unemployment insurance scheme into a single generosity parameter. Unemployment insurance policies are multdimensional objects. They are typically defined by waiting periods, eligibility duration, benefit levels and asset tests when eligible, which makes intertemporal or international comparisons difficult. To make things worse, labor market conditions, such as the likelihood and duration of unemployment matter when assessing the generosity of different policies. We build a first model with such complex characteristics. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model that is similar, except that the unemployment insurance is simpler: it is deprived of waiting periods and agents are eligible forever with constant benefits. We then determine which level of benefits in this second model makes agents indifferent between both unemployment insurance policies. We apply this strategy to the unemployment insurance program of the United Kingdom and study how its generosity evolved over time. Journal of Economic Literature Classification: J65, E24

Unemployment Insurance Reform – 1991–2006: A New Balance between Rights and Obligations in France, Germany, Portugal and Spain

“…The net replacement rate as a measure of social rights was used, for example, by Korpi and Palme (2003) who analyzed unemployment insurance (1975–95) in OECD countries. Compared to expenditure data, this indicator has the advantage of not being affected by increases in the number of beneficiaries but cannot capture every change in eligibility and entitlement rules (Pallage et al . 2008: 2).…”

Limited Liability, Moral Hazard, and Risk Taking: A Safety Net Game Experiment

“…Some authors indicate higher risk taking among insured institutions or subjects (Dionne et al 2005;Grossman 1992), whereas others find no difference in the comparison to the uninsured (Abbring, Chiappori, and Pinquet 2003). Surprisingly little evidence has been reported on the abuse of safety nets in health care (e.g., Breyer, Zweifel, and Kifmann 2004;Wolfe and Goddeeris 1991), or unemployment (e.g., Pallage and Zimmermann 2001).…”