Exit from Employment, unemployment insurance and business cycles
We want to study empirically how workers flowing into unemployment over the business cycle depends on unemployment insurance (UI) cover. The effect of being insured on transitioning into unemployment is a moral hazard effect that we wish to identify. Keeping constant coverage parameters, we can then further assess to what extent moral hazard in itself is cyclical and hence may reinforce or dampen benefit cycles. The moral hazard effect features prominently in a recent literature about the optimal design of UI schemes that trades off the need to contain moral hazard (via deductibles) with the liquidity provision of insurance (Chetty, 2008). Such trade-offs are likely to change with the cyclical position of the labor market (Andersen and Svarer, 2011; Kroft and Notowidigdo, 2011; Landais, 2011). In particular, credit constraints may vary with the cycle, making insurance more valuable, and conversely, labor market slack may exert a disciplining effect on (potential) benefit recipients.