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Moral hazard among the employed: Evidence from regression discontinuity

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  • Jessen, Jonas
  • Jessen, Robin
  • Johnston, Andrew
  • Gałecka-Burdziak, Ewa

Abstract

We exploit policy discontinuities in Poland's unemployment insurance to examine the causal effect of changes to both benefit durations and levels. Using a regression discontinuity approach, we uncover three findings: (1) Higher benefit levels distort employment more than benefit extensions. (2) Benefit durations and levels interact: Longer durations substantially increase the distortionary effect of more generous payments. (3) Higher payments increase the transition of employed workers into unemployment. We develop a model of optimal unemployment insurance that accounts for moral hazard among both employed and unemployed workers. Notably, for level increases, distortionary costs are larger among the employed than unemployed.

Suggested Citation

  • Jessen, Jonas & Jessen, Robin & Johnston, Andrew & Gałecka-Burdziak, Ewa, 2025. "Moral hazard among the employed: Evidence from regression discontinuity," Ruhr Economic Papers 1142, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:312428
    DOI: 10.4419/96973325
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    References listed on IDEAS

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    1. Gabriel Chodorow-Reich & John Coglianese & Loukas Karabarbounis, 2019. "The Macro Effects of Unemployment Benefit Extensions: a Measurement Error Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 227-279.
    2. Tuit, Sander & van Ours, Jan C., 2010. "How changes in unemployment benefit duration affect the inflow into unemployment," Economics Letters, Elsevier, vol. 109(2), pages 105-107, November.
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    5. Rafael Lalive & Jan Van Ours & Josef Zweimuller, 2006. "How Changes in Financial Incentives Affect the Duration of Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 1009-1038.
    6. Jessen, Jonas & Jessen, Robin & Galecka-Burdziak, Ewa & Góra, Marek & Kluve, Jochen, 2023. "The Micro and Macro Effects of Changes in the Potential Benefit Duration," IZA Discussion Papers 15978, Institute of Labor Economics (IZA).
    7. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
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    14. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series WP2011-063, Boston University - Department of Economics.
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    More about this item

    Keywords

    Unemployment insurance; spell duration; regression discontinuity; endogenous separations;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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