Trans-Atlantic Public Economics Seminar on Social Insurance

June 13-15, 2016
Roger Gordon of the University of California, San Diego; Andreas Peichl, University of Mannheim; and James M. Poterba of MIT, Organizers

Other Forms of Social Insurance

Anna Raute, University of Mannheim

Can Financial Incentives Reduce the Baby Gap? -Evidence from a Reform in Maternity Leave Benefits

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

Household Lab or Supply Responses to Severe Health Shocks and the Gains from Social Insurance

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

The Pros and Cons of Sick Pay Schemes: Testing for Contagious Presenteeism and Shirking Behavior

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

Labor Market and Savings Responses to Pension Reforms—Quasi-Experimental Evidence from Germany

Stuart Adam, David Philips, and Barra Roantree, Institute for Fiscal Studies

35 Years of Reforms: A Panel Analysis of the Incidence of, and Employee and Employer Responses to Social Security Contributions in the UK

Adam, Phillips, and Roantree exploit variation in the National Insurance contributions (NICs)–the UK's system of social security contributions–and 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 (0–6 months) after reforms are implemented and in the slightly longer term (12–18 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 0.2–0.3, 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 12–18 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

Disability, Earnings, Income and Consumption

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

Bunching at the kink: implications for spending responses to health insurance contracts

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

Is Tinkering with Safety Net Programs Harmful to Beneficiaries? Evidence from the Medicaid Notch and the Minimum Wage

Torben Fischer, Markus Frolich, and Andreas Landmann, University of Mannheim

Adverse Selection in Micro-Health Insurance Markets: Evidence from a Randomized Control Trial in Pakistan

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

Benefit Duration and Job Search Effort: Evidence from a Natural Experiment

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

Optimal Partial Unemployment Insurance: Evidence from Bunching in the U.S.

In this paper, Le Barbanchon uses kinks in the U.S. partial unemployment insurance schedule to study the response of claimants to the program. Partial unemployment insurance enables claimants to keep part of their unemployment benefits when they work in low-earnings jobs. When U.S. claimants earn over a state-specific threshold, termed the "disregard," their benefits are reduced at a 100% marginal tax rate above that amount. This reduction in current benefits leads to an increase in future benefits, with the result that forward-looking claimants are taxed according to a lower dynamic marginal tax rate. To account for these mechanisms, the researcher develops a dynamic model of claimants, who work in part-time/temporary jobs while searching for permanent jobs. Using administrative data on weekly claims, Le Barbanchon documents substantial bunching of unemployment insurance claimants at the disregard level. He estimates that the earnings elasticity to the net-of-tax-rate (at the intensive margin) lies between 0.1 and 0.2. Using this estimate, simulations show that setting the benefit reduction rate at 80% is Pareto improving, as the current schedule induces claimants to inefficiently reduce their earnings.

Ioana Marinescu, University of Chicago and NBER

The General Equilibrium Impacts of Unemployment Insurance: Evidence from a Large Online Job Board

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, 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.

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