A public program of unemployment benefits aims to protect people against job loss, but it should ideally be designed so that it doesn’t encourage them to stay out of work too much longer than they otherwise would. This research explores how policy can achieve the ideal balance between maximizing the insurance value of benefits while minimizing the incentive cost. Analyzing data from Sweden on unemployment, consumption, income, and wealth, the findings indicate that contrary to recent reforms that push towards making the generosity of benefits decline over the unemployment spell, it is more socially desirable to reduce benefits for the short-term unemployed in order to raise them for the long-term unemployed.
The number of people who receive long-term disability payments has grown rapidly in many countries, raising the question of whether it is possible for some of them to return to gainful employment. Analysing the impact of a major disability reform in the Netherlands, this research finds that long-term recipients of disability insurance were on average able to replace about 60% of lost benefits with labour income. This is evidence of substantial remaining work capacity among recipients and it suggests that there is scope for disability insurance reform to tap into this capacity.