Institutional Moral Hazard in the Multi-tiered Regulation of Unemployment and Social Assistance Benefits and Activation A summary of eight country case studies

TIn this paper, we study eight countries in which the regulation of unemployment benefits and related benefits (notably social assistance for able-bodied adults) and the concomitant activation of unemployed individuals has a multi-tiered architecture. We assess their experiences and try to understand possible problems of ‘institutional moral hazard’ that may emerge in the context of a (hypothetical) European Unemployment Benefit Scheme (EUBS). In the first section of the paper, we introduce the concept of ‘institutional moral hazard’, and contrast it to principal-agent problems which are also observed in the regulation of unemployment in some of our case studies. In the second section of the paper, we formulate a number of caveats and nuances with regard to our focus on institutional moral hazard. We argue that one should distinguish between institutional moral hazard as an objective reality, the public perception of institutional moral hazard, and public concern for it. In the third section of the paper, we specify factors that contribute to the salience of institutional moral hazard. These factors justify the analytical grid that we use to map our eight country cases; it is presented in section 4. In section 5, we briefly document the comparative generosity of the benefit systems in the countries under review, the overall strictness of the eligibility criteria, their budgetary impact, and the role of benefits in macroeconomic stabilisation. As we explain below, an overall assessment should assess problems of (institutional) moral hazard associated with benefit systems on the backdrop of the stabilisation capacity and redistributive features of these benefit systems; we can provide comparative data on the stabilisation for four of the eight countries under review, but data limitations do not allow us to present a comparison of the redistributive features of the systems under review. Section 6 highlights some of the most relevant features of the multi-tiered regulation of unemployment in the countries which we studied. In the final section, we formulate our main general conclusions, focusing on unemployment insurance and the lessons one can learn with regard to the idea of an EUBS. A summary of all our country case studies is added in the appendix to this paper, in the form of ‘country fiches’. (Eight more extensive reports on the country case studies are also available; they are added as a separate appendix to the research consortium’s report on ‘Feasibility and Added Value of a European Unemployment Benefit Scheme’