Public Economics:

Recent Papers

 

Children and Gender Inequality: Evidence from Denmark

Henrik Kleven, Camille Landais, Jakob Egholt Søgaard

January 2018

Despite considerable gender convergence over time, substantial gender inequality persists in all countries. Using Danish administrative data from 1980-2013 and an event study approach, we show that most of the remaining gender inequality in earnings is due to children. The arrival of children creates a gender gap in earnings of around 20% in the long run, driven in roughly equal proportions by labor force participation, hours of work, and wage rates. Underlying these "child penalties", we find clear dynamic impacts on occupation, promotion to manager, sector, and the family friendliness of the firm for women relative to men. Based on a dynamic decomposition framework, we show that the fraction of gender inequality caused by child penalties has increased dramatically over time, from about 40% in 1980 to about 80% in 2013. As a possible explanation for the persistence of child penalties, we show that they are transmitted through generations, from parents to daughters (but not sons), consistent with an influence of childhood environment in the formation of women's preferences over family and career.

 

Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets

Benjamin Handel , Jonathan Kolstad, and Johannes Spinnewijn

January 2018

Despite evidence that many consumers in health insurance markets are subject to information frictions, approaches used to evaluate these markets typically assume informed, active consumers. This gap between actual behavior and modeling assumptions has important consequences for positive and normative analysis. We develop a general framework to study insurance market equilibrium in the presence of choice frictions and evaluate key policy interventions, designed to combat adverse selection or to combat poor choices. We identify sufficient relationships between the underlying distributions of consumer (i) costs, (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing, due to improved consumer matching, or welfare reducing, due to increased adverse selection. We show that the impact of insurer risk-adjustment transfers, a supply-side policy designed to combat adverse selection, depends crucially on how effective consumer choices are, and is generally complementary to choice-improving policies. We implement our approach empirically, show how these key sufficient objects can be measured in practice, and illustrate the theoretically-motivated link between these objects and key policy outcomes.

 

Studying Consumption Patterns using Registry Data: Lessons From Swedish Administrative Data

Jonas Kolsrud, Camille Landais, and Johannes Spinnewijn

November 2017

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 nancial and real assets to consumption ows. 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 di erent means used to smooth consumption.

Keywords: Consumption Measurement, Registry Data, Inequality and Smoothing

 

Risk-based Selection in Unemployment Insurance: Evidence and Implications

Camille Landais, Arash Nekoei, Peter Nilsson, David Seim, and Johannes Spinnewijn

October 2017

This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage, even when controlling for a rich set of observables. Exploiting variation in risk and prices to control for moral hazard, we show how this correlation is driven by substantial riskbased selection. Despite the severe adverse selection, we find that mandating the supplemental coverage is dominated by a design leaving the choice to workers. In this design, a large subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. Our findings raise questions about the desirability of the universal mandate of generous UI in other countries, which has not been tested before

Keywords: Adverse Selection, Unemployment Insurance, Mandate, Subsidy

 

The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden

Jonas Kolsrud, Camille Landais, P Nilsson, and Johannes Spinnewijn

June 2017

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 flat 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.

Keywords: Unemployment, Dynamic Policy, Sufficient Statistics, Consumption Smoothing