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Report

Teaser, summary, work performed and final results

Periodic Reporting for period 2 - DYNAMICSS (Labour market dynamics and optimal policies)

Teaser

Summary

From pension to unemployment insurance or parental leave benefits, social insurance programs are inherently dynamic: they specify a schedule of tax and benefits that is time or state dependent and they affect individualsâ€™ decisions throughout their lifetime.
How should we optimally set up such programs, taking into account their dynamic nature?
The optimal tax and program design literature is often ill-equipped to provide clear guidance in policy debates on the reform of social insurance and tax-and-benefit systems because this literature is mostly focused on static settings.

DYNAMICSS develops a simple and general approach to the analysis of optimal dynamic policies that connects to the data.

The objective of DYNAMICS is to apply this approach to provide important contributions to the analysis of the optimal design of unemployment insurance system, of the optimal design of retirement pension systems, and of the optimal design of family policies.

Work performed

The first part of the project on the optimal dynamic design of UI has been almost entirely completed.
The overall theoretical framework has led to a paper entitled â€œThe Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden â€œ that is now forthcoming in the American Economic Review.
The important result from this part of the project is that having profiles of UI benefits that decline over the unemployment spell are not actually optimal.
These results have attracted a lot of attention in the public debate.

The construction of residual measures of consumption from administrative data has taken a lot of time and effort, but is also now completed.
This has led to a paper entitled Â« Studying Consumption Patterns using Registry Data: Lessons From Swedish Administrative Data Â» that is revise and resubmit at the Journal of Public Economics.
I have also completed the design of a website dedicated to disseminating this important research and sharing best practices in the construction of residual measures of consumption. [http://sticerd.lse.ac.uk/_new/research/pep/consumption/default.asp]
A conference on the topic of new consumption measures has also been organized in December 2016 and was a great success, with top scholars joining from around the world. The proceedings will be published in a special issue of the Journal of Public Economics. http://sticerd.lse.ac.uk/_new/events/cepr2016/
And given the success of the conference, it has been decided to create an annual conference on this topic that I jointly organize with Soren Leth Peterson with funding from Univ of Copenhagen.

A lot of work has also been done on the second part of the project on the optimal design of retirement pension.
The work has consisted in developing the theoretical framework and also in documenting and analysing empirically consumption patterns around retirement.
Important results from this research show that consumption profiles after retirement of individuals who retire early are actually not significantly lower than that of individuals retiring later.
This fact critically affects the way to think about optimal design of retirement benefits as a function of age at retirement.

Finally, a lot of progress has been made on Part 3 of the project on gender norms and parental leave policies.
One of the important result of this part of the project is that public policies such as parental leave and child care policies have a limited impact on the dynamics of the child penalties on women\'s labor market trajectories around parenthood.

Final results

The approach pioneered by DYNAMICSS has enabled to push the frontier of the analysis of dynamic public policies.
It has also significantly pushed the frontier of the measurement of consumption.
It has finally significantly changed the state of knowledge on the sources of the gender wage gap and the impact of policies in addressing this gap.