Essays in social insurance

This dissertation is comprised of three empirical studies of social and private insurance programs: Unemployment Insurance, Disability Insurance, and Health Insurance. It aims to contribute to our understanding of how both firms and individuals respond to the design of social insurance programs. The first chapter studies the effect of unemployment insurance taxation on firm behavior. I investigate whether and to what extent state-level differences in unemployment insurance taxes influence the location decisions and labor demand of multi-establishment firms. In the United States each state administers its own unemployment insurance (UI) program, and cross-state variation leads to significant differences in the potential UI tax costs faced by employers in different states. Leveraging the existing locations of multi-state manufacturing firms for identification, I find that high tax plants were more likely to exit during economic downturns, and less likely to hire during the recovery. Moving a plant's outside option from a high tax state to a low tax state would increase its likelihood of exit by 20% during the Great Recession. These findings suggest that decentralized administration of UI taxes may contribute to jobless recoveries and additional misallocation in the economy. The second chapter is co-authored with Courtney Coile and Mark Duggan, and studies the effect of the veterans disability compensation program on labor supply and entrepreneurship for Vietnam-era veterans. The U.S. Department of Veterans Affairs Disability Compensation (DC) program provides disability benefits to one in five military veterans in the US and its annual expenditures exceed 0 billion. We examine how the receipt of DC benefits affects the employment decisions of older veterans. We make use of variation in program eligibility resulting from a 2001 policy change that increased access to the program for Vietnam veterans who served with "boots on the ground" in the Vietnam theater but not for other veterans of that same era. We find that the policy-induced increase in program enrollment decreased labor force participation and induced a substantially larger switch from wage employment to self-employment. This latter finding suggests that an exogenous increase in income spurred many older veterans to start their own businesses. The final chapter of my dissertation is co-authored with Jonathan Zhang, and studies whether health care consumers exhibit forward-looking behavior. A fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non-linear insurance contracts? Our paper tests the neoclassical prediction that a fully forward-looking agent only responds to their expected end-of-year price. Our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible, thereby knowing their expected end-of-year price. We find that during the year of a childbirth, fathers increase medical spending by 11% per month after their deductible is satisfied, rejecting the null of fully forward-looking consumers. This behavior cannot be explained by fathers increasing utilization in response to the childbirth itself. Furthermore, this myopia translates to a 21-24% decrease in total annual medical spending, relative to the counterfactual of fully forward-looking behavior, and is concentrated in elective procedures; we find no response in low value or urgent care. Our findings suggest the need for modeling non-linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance.

Keywords: Economics.
Advisor: Bloom Nick
Duggan Mark G. (Mark Gregory) 
Pistaferri Luigi