Periodic Reporting for period 4 - DYNAMICSS (Labour market dynamics and optimal policies) Reporting period: 2020-09-01 to 2021-02-28 Summary of the context and overall objectives of the project 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 individuals’ 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. DYNAMICS has applied 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 from the beginning of the project to the end of the period covered by the report and main results achieved so far The first part of the project on the optimal dynamic design of UI has led to three papers. The overall theoretical framework has led to a paper entitled “The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden “ published 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, in Scandinavia, France and Belgium for in particular.Two additional papers, which were spin-offs of this initial research have also been published.« Risk-based Selection in Unemployment Insurance: Evidence and Implications » has been published in the the American Economic Review. The paper explores the implications of adverse selection in unemployment insurance markets, and finds that significant adverse selection is not sufficient to rationalize the presence of mandates for unemployment insurance.« The Value Of Unemployment Insurance » explores various methods for measuring the consumption smoothing benefits of insurance against job loss. The paper develops in particular a new approach to measure those benefits, based on the comparison of marginal propensities to consume before vs after job loss, and finds that the value of insurance is significantly larger than previously estimated. Finally, a review paper, « Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design », forthcoming in the Annual Review of Economics, summarizes the various contributions of DYNAMICSS to the optimal design of unemployment insurance.The construction of residual measures of consumption from administrative data has taken a lot of time and effort, and has led to a paper entitled « Studying Consumption Patterns using Registry Data: Lessons From Swedish Administrative Data » 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 have been 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. The 4th edition is happening in 2021.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. This has led to a paper entitled:“Retirement Consumption and pension design”.Finally, Part 3 of the project on gender norms and parental leave policies has led to a series of papers.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 (« Do Family Policies Reduce Gender Inequality? Evidence from 60 Years of Policy Experimentation ») Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far) 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. Notes to Figure 1 Figure 1
