DOES A DECREASE IN UNEMPLOYMENT INSURANCE GENEROSITY WORSEN HEALTH STATUS? EVIDENCE FROM A NATURAL EXPERIMENT IN SPAIN

Manu Flores Mayo, Institut de Recerca en Avaluació i Polítiques Públiques, Universitat Internacional de Catalunya
AYeconomics-GAME seminars

• Abstract:

While there is much micro evidence in the literature on the labor market effects of unemployment insurance (UI) generosity, we still know little about whether and how UI generosity affects other outcomes such as people’s health. Relatedly and more generally, we do not know enough about how UI and sickness insurance (SI) interact, even though these are two major social insurance programs among young and middle-aged workers. To gain insights into these issues, we use unique linked social security and detailed health registers on certified sickness absences (SA) from a large Spanish region (Catalonia). Our identification strategy relies on a difference-in-differences approach and exploits a policy reform, which produced a significant and unexpected reduction of 10 p.p. (about 17%) in the replacement rate after 180 days of UI benefit receipt for all spells beginning on July 15, 2012. We replicate Rebollo-Sanz and Rodríguez-Planas’ (2020, Journal of Human Resources) earlier finding of a positive effect of the reform on employment in the first months of UI receipt, but in addition we find that reform had also a positive effect on the probability of having a certified SA episode. The effect on SA, moreover, is relatively large compared to the effect on employment (a 45% vs. 18% increase) and appears to be driven by illnesses that are related to stress, suggesting “financial stress” as a possible pathway through which a decrease in UI generosity can have an impact on health. Interestingly, we find no evidence that the reform had an impact on sickness episodes that can be thought of as being exogenous such as the ones related to poisonings.