Institutional moral hazard in the multi-tiered regulation of unemployment in the United States Background paper

This paper has been written in preparation of a research project funded by the European Commission (on the Feasibility and Added Value of a European Unemployment Benefit Scheme, contract VC/2015/0006). This paper adds information and detailed analysis to the following deliverable of that research project: Institutional Moral Hazard in the Multi-tiered Regulation of Unemployment and Social Assistance Benefits and Activation - A summary of eight country case studies; but it was not a deliverable. We use the concept ‘institutional moral hazard’ to analyse intergovernmental relations within multi-tiered welfare states, specifically the domain of in unemployment-related benefits and related activation policies (the ‘regulation of unemployment’). This paper is one of eight separate case studies, it focuses on the US. US unemployment insurance is a cooperation between the states and the federal government. Social assistance is divided between state-operated programmes, funded by block grants, and federally designed food assistance. Transversal activation policies are implemented by the states. At first sight, concerns for institutional moral hazard seem limited. But several reforms altered cost-sharing arrangements in social assistance and led to stricter minimum requirements for state-run activation policies. Therefore, it would be a mistake to overlook the role of institutional moral hazard in the US system.