Trans-Atlantic Public Economics Seminar on Social Insurance
June 13-15, 2016
Other Forms of Social Insurance
Anna Raute, University of Mannheim
Raute studies whether earnings dependent parental benefits have a positive impact on fertility, and whether they are successful at narrowing the baby gap between high educated (high earning) and low educated (low earning) women. She exploits a reform in parental leave benefits in Germany: Up until 2007 German parental benefits were means-tested transfers and targeted at lower income families. From 2007 onwards parental leave benefits were increasing in mother's pre-birth earnings with a minimum benefit being granted to all mothers. The reform increased the financial incentives to have a child for higher educated and higher-earning women considerably, by up to 21,000.
Itzik Fadlon, University of California, San Diego and NBER, and Torben Heien Nielsen, University of Copenhagen
This paper studies how households respond to severe health shocks and the insurance role of spousal lab or supply. In the empirical part of the paper, Fadlon and Nielsen provide new evidence on individuals' labor supply responses to spousal mortality and health shocks. Analyzing administrative data on over 500,000 Danish households in which a spouse dies, they find that survivors immediately increase their labor supply and that this effect is entirely driven by those who experience significant income losses due to the shock. Notably, widows -- who experience large income losses when their husbands die -- increase their labor force participation by more than 11%, while widowers -- who are significantly more financially stable -- decrease their labor supply. In contrast, studying over 70,000 households in which a spouse experiences a heart attack or a stroke but survives, the researchers find no economically significant spousal labor supply responses to non-fatal health shocks, consistent with the adequate insurance coverage for their associated income losses in the authors' setting. In the theoretical part of the paper, the authors show that spousal labor supply responses have direct welfare implications for social insurance against mortality and health shocks. In light of this theoretical result, the empirical findings imply large welfare gains from transfers to survivors and identify efficient ways for targeting government transfers.
Stefan Pichler, ETH Zurich, and Nicolas R. Ziebarth, Cornell University
This paper proposes a test for the existence and degree of contagious presenteeism and negative externalities in sickness insurance schemes. First, Pichler and Ziebarth theoretically decompose moral hazard into shirking and contagious presenteeism behavior and derive testable conditions. Then, they implement the test exploiting German sick pay reforms and administrative industry-level data on certified sick leave by diagnoses. The labor supply adjustment for contagious diseases is significantly smaller than for noncontagious diseases. Lastly, using Google Flu data and the staggered implementation of U.S. sick leave reforms, the researchers show that flu rates decrease after employees gain access to paid sick leave.
Social Security Programs
Mathias Dolls, Philipp Doerrenberg, Andreas Peichl, and Holger Stichnoth, ZEW Mannheim
Stuart Adam, David Philips, and Barra Roantree, Institute for Fiscal Studies
Adam, Phillips, and Roantree exploit variation in the National Insurance contributions (NICs)the UK's system of social security contributionsand a large panel dataset to examine the effects of 35 years of employee and employer NICs reforms on employer cost (gross earnings plus employer NICs), hours of work and employer cost per hour, both immediately (06 months) after reforms are implemented and in the slightly longer term (1218 months). The researchers consider assumptions under which the estimated coefficients on net-of-marginal and net-of-average tax rates in a panel regression can be interpreted as behavioral elasticities or as reflecting incidence. The authors find a compensated elasticity of taxable earnings with respect to the marginal rate of employee NICs about 0.20.3, operating largely through hours of work, while that with respect to the marginal rate of employer NICs is not statistically significantly different from zero. The researchers also find that employer cost falls approximately one-for-one when the average rate of employer NICs is reduced, but not when the average rate of employee NICs is reduced, which is consistent with the economic incidence of NICs following its formal legal incidence. Estimates from the hours and hourly employer cost regressions provide further support to this interpretation of the findings, and also suggest moderate-sized income effects. Each of these results remains true after 1218 months (the effects of lagged changes in NICs rates are generally statistically insignificant), implying that any shifting of employer NICs changes to the individual employees concerned (and vice versa for employee NICs) does not begin over this time horizon. These results are very similar to those found by Lehmann et al. (2013) for France but represent an extension of that work by considering hours as well as employer cost responses and second-year as well as immediate effects.
Bruce D. Meyer, University of Chicago, and Wallace K. C. Mok, Chinese University of Hong Kong
Meyer and Mok study the well-being of the disabled and the economic benefits of disability insurance. Using longitudinal data for 1968-2009 for male household heads, the researchers determine the prevalence of working-age disability, its association with a wide range of economic outcomes including, earnings, income, consumption, wealth and time-use. The authors disaggregate the disabled based on the persistence and severity of work-limiting conditions and find that disability is common and associated with poor economic outcomes. The outcomes differ sharply by disability group. The researchers then provide the range of behavioral elasticities and preference parameters consistent with current disability compensation being optimal in the Baily-Chetty framework.
Health Insurance Programs
Liran Einav, Stanford University and NBER; Amy Finkelstein, MIT and NBER; and Paul Schrimpf, University of British Columbia
A large literature in empirical public finance relies on "bunching" to identify a behavioral response to non-linear incentives and to translate this response into an economic object to be used counterfactually. Einav, Finkelstein, and Schrimpf conduct this type of analysis in the context of prescription drug insurance for the elderly in Medicare Part D, where a kink in the individual's budget set generates substantial bunching in annual drug expenditure around the famous "donut hole." The researchers show that different alternative economic models can match the basic bunching pattern, but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts. These findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest.
Jeffrey Clemens and Michael Wither, University of California, San Diego
Torben Fischer, Markus Frolich, and Andreas Landmann, University of Mannheim
Fischer, Frolich, and Landmann provide robust evidence on adverse selection in low-income health insurance markets from a randomized control trial in rural Pakistan. Their experimental setup allows them to separate adverse selection from moral hazard, to estimate how selection changes at different points of the price curve and to test different measures against adverse selection. The results suggest that there is substantial adverse selection if health insurance coverage can be individually assigned. In particular, adverse selection becomes worse with higher premium prices, creating a trade-off between cost recovery and the quality of the insurance pool. In contrast, adverse selection is mitigated through bundling insurance policies at the household or higher levels. The results for the authors' sample suggest that insurers should abstain from offering individual policies to avoid adverse selection, which should allow them to focus on simple and comprehensive products for the low-income market.
Unemployment Insurance Programs
Andreas Lichter, IZA
Findings of prolonged nonemployment spells due to more generous unemployment insurance (UI) schemes are commonly interpreted as an indication of reduced job search effort and UI-induced moral hazard. Lichter exploits quasi-experimental variation in the potential benefit duration for one particular age group of workers in Germany paired with individual-level data on job search behavior to directly investigate the assumed relationship. The results of this study provide substantial support for strategic job search behavior in response to the generosity of the unemployment insurance scheme: extension of the potential benefit duration cause job search effort to significantly decrease, lowering the number of filed applications and the probability of applying for a job that requires moving. The results further suggests that the observed responses in job search effort are indeed due to moral hazard behavior.
Thomas Le Barbanchon, Bocconi University
Ioana Marinescu, University of Chicago and NBER
During the Great Recession, U.S. unemployment benefits were extended by up to 73 weeks. Theory predicts that extensions increase unemployment by discouraging job search, a partial equilibrium effect. Using data from the large job board CareerBuilder.com, Marinescu finds that a 10% increase in benefit duration decreased state-level job applications by 1%, but had no robust effect on job vacancies. Job seekers thus faced reduced competition for jobs, a general equilibrium effect. Calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 40%: increasing benefit duration by 10% increases unemployment by only 0.6% in equilibrium.