Moral Hazard among the Employed: Evidence from Regression Discontinuity
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.
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Copy CitationJonas Jessen, Robin Jessen, Andrew C. Johnston, and Ewa Gałecka-Burdziak, "Moral Hazard among the Employed: Evidence from Regression Discontinuity," NBER Working Paper 33450 (2025), https://doi.org/10.3386/w33450.
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