Kotamäki M, Mattila J, Tervola J. Turning static pessimism to dynamic optimism. An ex-ante evaluation of unemployment insurance reform in Finland. Working papers 124, Kela. http://hdl.handle.net/10138/212599

1. Turning static pessimism to dynamic
optimism
An ex-ante evaluation of unemployment insurance
reform in Finland
Mauri Kotamäki, Jukka Mattila and Jussi Tervola
Työpapereita 124, 2017

2. Background
• Objective: To evaluate ex-ante dynamic i.e. behavioral
effects of unemployment insurance reform that took
place in the beginning of 2017 in Finland. The potential
benefit duration was cut by 100 days.
• Data: Register population sample of 800,000 individuals
• Method: Microsimulation (SISU model), calculating
multiple scenarios with different labor supply elasticities,
baseline being the elasticity of 0.7
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3. Conclusions
• Accounting for the behavioral response changes the
evaluated impact of the reform significantly.
• Compared to the static scenario,
• Negative effect on household finances is neutralized (-48 → +2 M€)
• Positive effect on public finances more than doubles (+48 → +116 M€)
• Marginal increase of inequality is neutralized (Gini +0.02 → ±0)
• However, the result is sensitive to elasticity estimate.
Existing literature favours our choice of baseline
elasticity (0.7).
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