Welfare state and social Europe

Mariacristina De Nardi, Giulio Fella, Gonzalo Paz-Pardo, 07 February 2021

The optimal size and structure of government benefit programmes crucially depend on households’ income risk and their ability to self-insure against it. This column demonstrates that in the UK, earning dynamics, such as income risk and shock persistence, differ substantially depending on age and position in the income distribution. Taking these dynamics into account when evaluating benefit policies is of crucial importance, as it dramatically changes the estimated welfare improvements. When the dynamics are incorporated, the 2016 reform of the UK’s benefit system is found to have been welfare-improving on average. 

Ammar Farooq, Adriana Kugler, Umberto Muratori, 07 February 2021

Economists have long debated whether extensions to unemployment insurance benefit durations help or hinder the labour market. Using US administrative microdata, this column shows that the generosity of unemployment insurance benefits has a positive effect on the labour market by improving job match quality. Importantly, these benefits are greater for women as well as for minority and less educated workers. In light of the current economic crisis, giving ideally suited workers and firms sufficient time to find each other can be part of the healing. 

Catarina Midões, Mateo Seré, 06 February 2021

The COVID-19 outbreak has induced dramatic economic shocks in European countries. Using ECB survey data, this column examines households’ financial vulnerability to an income shock in seven European countries and assesses the degree of protection awarded to employees by COVID-19 employment protection schemes. It finds that 18.2 million individuals, or 7% of the population of the countries analysed, cannot cover one month of food and utilities by resorting to their deposits, pensions, and public transfers. Importantly, there is a significant drop in the number of vulnerable with COVID-19 unemployment benefits. Rent and mortgage suspensions are more effective in some countries than in others.

Rafael Lalive, Arvind Magesan, Stefan Staubli, 12 January 2021

Policymakers have used a variety of tools to preserve the solvency of social security systems. The life-cycle model of behaviour predicts that financial incentives will shape people’s decisions on when to claim their pensions and when to retire but this is debatable. This column examines a reform to women’s pensions in Switzerland to understand how people respond to different policy instruments. Most people do not claim their pension benefits at the age that the standard model of behaviour would predict. Instead, individuals are influenced by the full retirement age (which they consider ‘natural’) and the fear of losing benefits by claiming early.

Josh Angrist, David Autor, Amanda Pallais, 06 December 2020

The US government and private organisations spend substantial amounts on financial aid for college students. Does this lead more students to complete college, or simply reimburse students who would have earned degrees anyway? This column reports on a randomised controlled trial with a private provider of post-secondary grant aid in Nebraska. It finds that awards increase enrolment and that recipients are considerably more likely to enrol at a four-year, rather than a two-year, college. Awards also boost bachelor’s degree completion rates in particular among subgroups that are typically less likely to complete a college degree.

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