Manipulation and Selection in Unemployment Insurance

In this paper, we study the selection patterns of individuals who manage to have their lay-off delayed around an age at lay-off threshold entitling them to four additional months of unemployment insurance, that is, ma...

In this paper, we study the selection patterns of individuals who manage to have their lay-off delayed around an age at lay-off threshold entitling them to four additional months of unemployment insurance, that is, manipulators. Using administrative data from Italy and bunching techniques, we document substantial manipulation around the cut-off and show that manipulators are selected on their long-term non-employment risk, but not on their moral hazard cost. Finally, we develop a sufficient statistics framework to assess how these findings affect optimal unemployment insurance duration in the presence of manipulation.