IDEAS home Printed from https://ideas.repec.org/a/ijm/journl/v11y2018i2p146-168.html
   My bibliography  Save this article

Distributional Impacts of Behavioral Effects – Ex-Ante Evaluation of the 2017 Unemployment Insurance Reform in Finland

Author

Listed:
  • Mauri Kotamäki

    (Finland Chamber of Commerce, Helsinki, Finland.)

  • Jukka Mattila

    (Finland Chamber of Commerce, Helsinki, Finland.)

  • Jussi Tervola

    (Social Insurance Institution of Finland (Kela), Current affiliation: National Institute for Health and Welfare (THL), Helsinki, Finland.)

Abstract

In 2017, the potential duration of the Finnish earnings-related unemployment benefit was cut from 500 to 400 days (or 400 to 300 working days). We apply a microsimulation method to calculate both static and behavioral ex-ante effects of the reform on employment, public finances and income inequality. Relying on previous empirical literature, we employ three benefit elasticity levels. Individual heterogeneity is added by weighting the elasticities with estimated employment probabilities. According to the static scenario, the reform increases income inequality, albeit marginally. Accounting for the behavioral response mitigates the effect on inequality and more than doubles the effect on public finances.

Suggested Citation

  • Mauri Kotamäki & Jukka Mattila & Jussi Tervola, 2018. "Distributional Impacts of Behavioral Effects – Ex-Ante Evaluation of the 2017 Unemployment Insurance Reform in Finland," International Journal of Microsimulation, International Microsimulation Association, vol. 11(2), pages 146-168.
    • Handle: RePEc:ijm:journl:v11:y:2018:i:2:p:146-168
    as

    Download full text from publisher

    File URL: https://microsimulation.org/IJM/V11_2/IJM_11_2_4.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jaejoon Woo & Ms. Elva Bova & Mr. Tidiane Kinda & Ms. Yuanyan S Zhang, 2013. "Distributional Consequences of Fiscal Consolidation and the Role of Fiscal Policy: What Do the Data Say?," IMF Working Papers 2013/195, International Monetary Fund.
    2. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a tool for evaluating redistribution policies," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 77-106, April.
    3. Henry S. Farber & Robert G. Valletta, 2015. "Do Extended Unemployment Benefits Lengthen Unemployment Spells?: Evidence from Recent Cycles in the U.S. Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 50(4), pages 873-909.
    4. Laurence M. Ball & Davide Furceri & Mr. Daniel Leigh & Mr. Prakash Loungani, 2013. "The Distributional Effects of Fiscal Consolidation," IMF Working Papers 2013/151, International Monetary Fund.
    5. Marcus Hagedorn & Iourii Manovskii & Kurt Mitman, 2015. "The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?," NBER Working Papers 20884, National Bureau of Economic Research, Inc.
    6. John Creedy & Guyonne Kalb, 2005. "Discrete Hours Labour Supply Modelling: Specification, Estimation and Simulation," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 697-734, December.
    7. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2012. "Comparing Labor Supply Elasticities in Europe and the US: New Results," Working Papers halshs-00805736, HAL.
    8. John Creedy & Guyonne Kalb & Rosanna Scutella, 2006. "Income distribution in discrete hours behavioural microsimulation models: An illustration," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 57-76, April.
    9. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    10. Konstantinos Tatsiramos & Jan C. Ours, 2014. "Labor Market Effects Of Unemployment Insurance Design," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 284-311, April.
    11. Valentinova Tasseva, Iva & De Agostini, Paola & Paulus, Alari, 2015. "The effect of tax-benefit changes on the income distribution in 2008-2014," EUROMOD Working Papers EM11/15, EUROMOD at the Institute for Social and Economic Research.
    12. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392, Elsevier.
    13. Nicole Bosch & Miriam Gielen & Egbert Jongen & Mauro Mastrogiacomo (DNB & voorheen CPB), 2013. "A structural analysis of labour supply elasticities in the Netherlands," CPB Discussion Paper 235, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Konstantinos Tatsiramos & Jan C. Ours, 2014. "Labor Market Effects Of Unemployment Insurance Design," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 284-311, April.
    15. Uusitalo, Roope & Verho, Jouko, 2010. "The effect of unemployment benefits on re-employment rates: Evidence from the Finnish unemployment insurance reform," Labour Economics, Elsevier, vol. 17(4), pages 643-654, August.
    16. Stefano DellaVigna & Attila Lindner & Balázs Reizer & Johannes F. Schmieder, 2017. "Reference-Dependent Job Search: Evidence from Hungary," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1969-2018.
    17. Tomi Kyyrä & Hanna Pesola, 2020. "The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(5), pages 1135-1160, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes Spinnewijn, 2020. "The Trade‐Off between Insurance and Incentives in Differentiated Unemployment Policies," Fiscal Studies, John Wiley & Sons, vol. 41(1), pages 101-127, March.
    2. Rebollo-Sanz, Yolanda Fatima & Rodríguez-Planas, Núria, 2016. "When the Going Gets Tough... Financial Incentives, Duration of Unemployment and Job-Match Quality," IZA Discussion Papers 10044, Institute of Labor Economics (IZA).
    3. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    4. Nicolas Hérault & Guyonne Kalb, 2022. "Understanding the rising trend in female labour force participation," Fiscal Studies, John Wiley & Sons, vol. 43(4), pages 341-363, December.
    5. Agathe Simon, 2022. "The impact of a European unemployment benefit scheme on labor supply and income distribution," French Stata Users' Group Meetings 2022 14, Stata Users Group.
    6. Elif S. Filiz, 2017. "The Effect of Unemployment Insurance Generosity on Unemployment Duration and Labor Market Transitions," LABOUR, CEIS, vol. 31(4), pages 369-393, December.
    7. Jia, Ye (George), 2023. "Did the unemployment benefits extension between 2009–2013 deter entrepreneurship in the US? Some evidence and a model of unemployment benefits and entrepreneurship," Economic Modelling, Elsevier, vol. 122(C).
    8. Pauline Leung & Christopher J. O'Leary, 2015. "Should UI Eligibility Be Expanded to Low-Earning Workers? Evidence on Employment, Transfer Receipt, and Income from Administrative Data," Upjohn Working Papers 15-236, W.E. Upjohn Institute for Employment Research.
    9. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    10. Machikita, Tomohiro & Kohara, Miki & Sasaki, Masaru, 2013. "The Effect of Extended Unemployment Benefit on the Job Finding Hazards: A Quasi-Experiment in Japan," IZA Discussion Papers 7559, Institute of Labor Economics (IZA).
    11. Sandra Müllbacher & Wolfgang Nagl, 2017. "Labour supply in Austria: an assessment of recent developments and the effects of a tax reform," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(3), pages 465-486, August.
    12. Tomi Kyyrä, 2023. "The effects of unemployment assistance on unemployment exits," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1457-1480, December.
    13. Le Barbanchon, Thomas, 2016. "The effect of the potential duration of unemployment benefits on unemployment exits to work and match quality in France," Labour Economics, Elsevier, vol. 42(C), pages 16-29.
    14. Henk-Wim de Boer, 2015. "A structural analysis of labour supply and involuntary unemployment in the Netherlands," CPB Discussion Paper 312.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    15. Mauro Mastrogiacomo & Nicole M. Bosch & Miriam D. A. C. Gielen & Egbert L. W. Jongen, 2017. "Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 769-796, October.
    16. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2016. "The Limited Macroeconomic Effects of Unemployment Benefit Extensions," Working Papers 733, Federal Reserve Bank of Minneapolis.
    17. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2023. "Unemployment insurance, recalls, and experience rating," Journal of Macroeconomics, Elsevier, vol. 75(C).
    18. Chiara Daniela Pronzato, 2015. "Fighting Lone Mothers’ Poverty Through In-Work Benefits: Methodological Issues and Policy Suggestions," CESifo Economic Studies, CESifo Group, vol. 61(1), pages 95-122.
    19. Tomer Blumkin & Leif Danziger & Eran Yashiv, 2017. "Optimal unemployment benefit policy and the firm productivity distribution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 36-59, February.
    20. Bratsberg, Bernt & Raaum, Oddbjørn & Røed, Knut, 2020. "Immigrant Responses to Social Insurance Generosity," Labour Economics, Elsevier, vol. 65(C).

    More about this item

    Keywords

    UNEMPLOYMENT INSURANCE; BEHAVIORAL EFFECTS; MICROSIMULATION; INEQUALITY;
    All these keywords.

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijm:journl:v11:y:2018:i:2:p:146-168. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jinjing Li (email available below). General contact details of provider: http://www.microsimulation.pub .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.