sou · GZB32 · 2011-01-18 00:00:00 — Self-screening means that potential applicants who think that their DI application does not meet the eligibility requirements choose not to apply for the program. Obviously, indirect effects due to self-screening can also arise because of other policy instruments which reduce the attractiveness of a sickness and disability program. Sickness and disability insurance Bilaga 8 till LU2011 4.3Legitimacy of Sickness Absenteeism In most countries the legitimacy of sickness absenteeism is checked by an independent physician. This can either be a GP or a doctor from an occupational health service contracted by the employer. Of course, the timing of the doctor's assessment might be important. Checking early in the sickness spell is costly because it involves many sick workers, while checking late might increase moral hazard problems. The empirical evidence on this topic is mainly from the Scandinavian countries. In 1988, a social experiment was conducted in Sweden.37 The first formal legitimacy check of sickness absenteeism was post- poned from eight days to 15 days. The experiment involved true randomization. No effects were found on the incidence of sickness absenteeism, but substantial effects on duration, i.e. the average duration of a sickness spell increased about . In particular, just before requiring the doctors certificate, recovery rates increased. The complete increase in additional sickness absenteeism took place within the first 15 days. After both groups had visited the doctor, there was no difference between both groups anymore. Moreover, from a cost-benefit perspective, the experiment was not very favorable, the costs of the additional sick pay exceeded the benefits of having to provide fewer doctors certificates. Also Norwegian evidence shows that doctors can play an important role in reducing sick pay.38 A Norwegian reform in 2004 involved that physicians should promote remaining as treatment. This implies that workers should remain doing their job unless their status makes this impossible. Physicians should thus encourage (part-time) work rather than sick leave. The main empirical result is that this reform caused a very substantial reduction of in sick leave. It should be noted that in certification by a physician is already required after three days of sickness. In primary care physicians are responsible for assessing the legitimacy of sickness absenteeism. There may be a tension between their healing duties and the gatekeeper role. Both short and long sick leaves may be granted at the request of the individu- als, since primary care physicians may give more priority to healing than to gatekeeping. This points towards separating these tasks, as 37See Hesselius et al. (2005). 38See Markussen (2010). Bilaga 8 till LU2011 Sickness and disability insurance is, for example, the case in the where the GP is responsible for healing while doctors from occupational health ser- vices are responsible for managing sickness absenteeism. 4.4Experience rating of insurance premiums In the , experience rating has been gradually intro- duced since 1998. Experience rating implies that if an employee is awarded a disability benefit, the firm faces a higher premium to the DI fund, and vice versa if a firm employs a disability beneficiary the level of premiums to the DI fund is reduced. This has been ana- lyzed on a unique longitudinal data set consisting of the Dutch DI administration records.39 The data cover about 370,000 firms, employing roughly six million insured workers. These firms were followed over a three year period, from 2000 till 2002. The overall picture that emerges from the empirical analysis is that the impact of experience rating on the DI inflow has been substantial. After one year the inflow into DI had already decreased with , mainly because employers increased their preventive activities in reaction to an increase in their premium rates ('ex post incentives'). As far as we are aware this is the only paper considering experience rating of DI premiums. 4.5Extending the waiting period of sickness absenteeism A longer waiting period could also be considered as a type of experience rating. There are, as far as we know, no empirical evaluation studies of the effect of extending the waiting period. In the , the waiting period was extended from one year to two years in 2005. This meant that there was no inflow into DI in 2005. Between 2004 and 2006 the inflow into the Dutch DI dropped with . However, it is difficult to isolate the effect from extending the waiting period from business cycle effects and other institutional changes. The extension of the waiting period was accompanied other changes. In particular, the entry require- ments for the new scheme were stricter than for the old scheme. Of course, this also has an effect on the inflow. 39 See Koning (2004). Sickness and disability insurance Bilaga 8 till LU2011 4.6Empirical evidence on screening In the a so-called gatekeeper protocol was introduced in . This protocol included screening of DI applications. The screening focused on reintegration activities provided by employers during the period of sickness absenteeism. This shifted responsibilities for reintegration activities from the DI administra- tion to the employers. Between 2002 and 2004 the inflow into DI was reduced by . About half of this reduction can be attrib- uted to the introduction of the gatekeeper protocol.40 Three other factors which helped reduce the inflow were: (i) In 2003 the experience rating in DI premiums paid by the employers became fully 'biting', (ii) between 2002 and 2004 the Dutch economy experienced a downturn, which reduced sickness absenteeism, and (iii) the generosity of the DI program was reduced. At the moment of the introduction of the gatekeeper protocol an experiment was conducted to investigate the importance of the degree of screening of DI applications. In particular, in two Dutch regions a stricter screening regime for DI applications was imple- mented. The case workers in these two regions spent on average additional time on each DI application. To control for existing differences between regions, difference-in-differences estimation is used. The outcomes of stricter screening cannot be a reason for a denial of a DI application. It can only lead to a sanc- tion to the employer or the worker. A sanction to the employer implies that the waiting period of sickness absenteeism before entering DI is extended with a few months. During this period, the employer has to continue paying the salary of the sick worker. If the sanction is given to the worker, the worker receives only reduced benefits during the first few months of DI. The empirical results show that this regime of stricter screening reduces the number of DI applications.41 In particular, due to the stricter screening significantly less workers report to be sick. If stricter screening would be applied nationwide, the number of sickness absenteeism reports would be reduced by , and DI applications by . A cost-benefit analysis shows that the costs of additional screening are negligible compared to the reduction in DI benefit payments due to the lower inflow into disability insur- ance. In particular, the DI administration can save over 60 million 40See De (2009). 41See De et al. (2010). Bilaga 8 till LU2011 Sickness and disability insurance euro annually by implementing stricter screening. It should be noted that the reduction in DI applications did not increase the inflow into UI. The stricter screening thus also reduced sickness absenteeism, which seems mainly the result of increased self-screening of potential DI applicants. There is a substantial literature about self- selection and disincentive effects from the US.42 This literature shows that increased denial rates for applications induce a mecha- nism of self-selection of potential applicants. 42 E.g. Autor and Duggan (2003), (2000), and Kubik (1997) and Parsons (1991). 5.1Interaction between benefit programs It is likely that benefit programs interact with each other. As already mentioned in Section 4.2, changing the entitlement rules for SI/DI might affect the inflow into UI. If an employer decides to lay-off a worker, the employer and worker may choose the benefits program which is most generous and easily accessible. Therefore, SI/DI programs may contain some hidden unemploy- ment43 Once it becomes more difficult to enter SI/DI, the employer and worker can decide to apply for UI rather than SI/DI. There are very few empirical studies on the interaction between benefits programs. For the the stricter screening of DI applications, which reduced both DI applications and long-term sickness absenteeism, did not increase the inflow into UI. This suggests that at that there is no spillover between DI and UI. There is, however, also Dutch evidence that of all dismiss- als take place through DI.44 This implies that about of all DI enrolment consists of hidden unemployment. No evidence is reported for reverse substitution, i.e. disabled workers entering UI. For empirical evidence suggests that there exists a strong substitution between SI/DI and UI.45 In , unem- ployed workers who could receive sickness benefits at a higher level than UI benefits tend to apply for sickness benefits. This thus generates some hidden unemployment in SI/DI and may also be a source of moral hazard (behavioral changes) in SI/DI programs. For no strong evidence in favor of substitution between disability pensions and unemployment for older workers is found.46 The two pathways out of the labor market show similarities, but 43See Autor and Duggan (2003) for evidence for the US. 44See Koning and (2007). 45See and (2009) and (2006). 46See Riphahn (1997). Bilaga 8 till LU2011 some indicators such as individual health and aggregate unem- ployment have clearly different effects on both pathways. For the US, the evidence suggests that the disability program contains hid- den unemployment. 5.2Macro effects and spillover effects As we discussed in Section 3, most policies for unemployed work- ers aim at increasing the search effort either by using carrot type instruments (i.e. counseling, reemployment wage bonuses) or stick type instruments (i.e. So far, we have ignored possible influences from the treatment group to the control group (negative) and to the employers (positive). If, for example, a par- ticular policy helps the treated workers to find jobs but this hap- pens at the expense of the not-treated workers, the treatment is not desirable but this would be missed if we only look at partial treat- ment effects. In this section we ask how macro (general equilib- rium) effects may change our conclusions. This requires stronger assumptions but conditional on those assumptions it allows for a cost-benefit analysis at the aggregate level. Workers can only apply to a limited number of vacancies and therefore they cannot be too choosy. However, when accepting an imperfect match, it might be that the job may fit better to another worker and the worker is no longer available for jobs that fit better. UI benefits can prevent workers from taking bad jobs and make them choosier. The policies to reduce moral hazard that we dis- cussed before in Section 2 can have potentially harmful effects since they make workers less rather than more choosy. Of course, the more efficient on-the-job search is, the less costly it is if work- ers accept bad job offers. The literature on optimal participation and search intensity is also relevant. Long spells of unemployment may cause skill loss, demotivate or stigmatize workers resulting in workers leaving the labor force. In a recent Dutch study the socially optimal job search effort is derived. The study indicates that too few workers partici- pate in the labor market, but that some unemployed workers actu- ally search too much. This is due to coordination frictions (each additional application creates congestion for the other unemployed workers) and workers do not only search hard to find a job but Bilaga 8 till LU2011 also to find the highest possible wage. Again, UI benefits (condi- tional on search) are desirable to stimulate participation. Finally, introducing sanctions for benefit recipients has a down- ward effect on wages because it makes the non-employment state less attractive. This in turn, makes it more attractive to open vacan- cies and has additional positive employment effects. In this report, we have provided empirical evidence that social insurance programs for unemployment, sickness and disability, are likely to suffer from serious moral hazard problems. Moral hazard implies that generous benefits increase the take-up of such bene- fits. The benefits systems in are quite generous. In par- ticular, entitlement periods of UI benefits are long. The replace- ment rates are relatively high, but capped at a relatively low daily maximum. So replacement rates are high for low-income people and low for high-income people. We have also discussed a series of policies which can potentially offset the implications of the moral hazard problems both for unemployment benefits and sickness and disability benefits. Empirical results show that many of these policies are quite suc- cessful. This implies that such policies can be used to combine a relatively generous social insurance system with high labor force participation. Before discussing which policies might be incorporated in the Swedish institutions, it is useful to first briefly look at the Swedish labor market outcomes. From our own work and the literature on policy interventions, we know that heterogeneity is extremely important. The first step is therefore to identify in which groups, labor force participation is relatively low in . has high labor force participation rates, particularly among older work- ers and women. The latter might be explained by the tax system and the generous child care subsidies. Swedish income taxes are high but individual rather than household based which seems important in stimulating labor force participation. Youth unemployment rates are fairly high is . Whereas many countries use policies such as strict monitoring and imposing sanctions to stimulate reemployment, relies more on pro- training programs and job search assistance. Bilaga 8 till LU2011 workers, strict monitoring with a serious threat of getting a sanc- tion for insufficient job search effort might be more effective. To incorporate such policies in the Swedish institutions, it would be useful to have within the unemployment insurance administrations separate departments which are responsible for punishing unem- ployed workers for noncompliance to the guidelines. In , monitoring mainly focuses on whether benefit recipients refuse suitable job offers. This does not seem to be optimal because it might discourage unemployed workers from searching . Thus benefit recipients who apply to many jobs, but who receive relatively bad offers, will be punished more severely than those who do not apply at all. Therefore, caseworkers should first make sure that benefit recipients apply for jobs sufficiently, and next enforce that benefit recipients accept suitable job offers. In entitlement to unemployment insurance benefits is conditional on membership in an unemployment insurance fund. Membership rates have traditionally been high, but are declining. This may cause adverse selection problems, i.e. workers with high unemployment risks become members, while workers with low unemployment risks will not become members. This may result in increasing premiums, which may cause even further declines in membership rates. There are clear benefits of having unemploy- ment insurance. Therefore, if the decline in membership rates con- tinues, it might be useful to change the system to a nationwide mandatory unemployment insurance system. Like in the , has started privatizing the market for labor market programs. The details of such a market are very important, for example, reserving a fixed budget for labor market policies does not create incentives to invest only in the most effective programs. So, the cost-benefit element should always be taken into account when deciding about providing labor market programs to unemployed workers. currently has a very high rate of sickness absenteeism, which is largely explained by very high long-term sickness absen- teeism. In particular, the inflow of young workers is high. Com- pared with other countries, the Swedish sickness insurance and dis- ability insurance system does not contain many incentives and employer responsibility is rather low. The international evidence shows that stimulating the outflow from disability insurance pro- grams is difficult, therefore, one should focus on the inflow. Finan- cial incentives are very useful in reducing the inflow. Bilaga 8 till LU2011 one may consider extending the waiting period or the period the employer is responsible for sick pay, experience rating for employ- ers with large sickness absenteeism and sanctions for employers who do not prevent inflow into disability insurance sufficiently. 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Optimal utformning av arbetslöshetsförsäkringen................ Empiriska resultat om arbetslöshetsförsäkringens