PRIVATE UNEMPLOYMENT INSURANCE DEMAND: EVIDENCE FROM A VOLUNTARY PUBLIC SYSTEM

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PRIVATE UNEMPLOYMENT INSURANCE DEMANDEVIDENCE
FROM A VOLUNTARY PUBLIC SYSTEM

• Donald O. Parsons
• Department of Economics, George Washington
  University, and IZA Bonn
• Torben Tranæs
• Rockwool Foundation, EPRU, and CESifo
• Helene Bie Lilleør
• CAM and Department of Economics, University of
  Copenhagen

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OUTLINE

• Introduction
• The Danish Voluntary Unemployment Support
  System
• A Model of the Decision to Join an
  Unemployment Insurance Fund
• The Data
• Empirical Overview
• UI-Fund Membership
• A Multivariate Logit Analysis
• UI-Fund Membership II Conditional Logit
  Estimates
• Some Policy Selection Effects
• Conclusion

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Danish System

• Voluntary Unemployment Insurance Program
• Organized around union funds
• Self supporting at 3 percent unemployment
• Same cash benefits and base fee in all funds
• (Unemployment) Social Assistance Program
• Means-tested (dollar for dollar reduction with
  spouse earnings)
• By 1995, designed to offer less benefits than UI
• Zero Option (Uninsured)

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Obvious Problems

• Adverse Selection with Single Premium
• Charity Hazard

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• MODEL
• Simple Choice (Join UI-Fund or not)
• Alternative social assistance or uninsured
• Expect adverse selection over risk
• Charity hazard selection effects?
• DATA
• Ten percent Danish Sample Danish Statistics
  combines a large variety of administrative data
• Restricted access and expensive, especially when
  project began. We use 1993-1994-1995 data here.

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Conclusions

• Some Findings
• UI-fund membership is much larger than one might
  have predicted from voluntary public insurance
  literature (about 80 percent)
• Adverse selection across individual risk is
  substantial.
• UI membership is (positively) responsive to
  benefit levels.
• UI membership is (negatively) responsive to SA
  benefit levels.
• Distributional Issues

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• Policy Implications
• The results raise efficiency and distributional
  questions about the current system.
• Possible Reforms
• Voluntary system
• Risk-rated premiums
• Less generous social assistance
• Alternatives
• Shift to mandatory system