Moral hazard among the sick and unemployed: evidence from a Swedish social insurance reform

Abstract

This paper studies a specific type of moral hazard that arises in the interplay between two large public social insurance systems in Sweden, namely the sickness insurance (SI) and the unemployment insurance (UI). Moral hazard can arise from the structure of the benefit levels as for some unemployed persons benefits from the SI are higher than benefits from the UI. We use a reform of the SI system that came into force on 1 July 2003 to identify the effect of economic incentives arising from the different benefit levels. The purpose of the reform was to eliminate the difference in benefits between the two social insurance systems. Our results from a duration analysis show clearly that the higher the sickness benefits, the higher the probability of reporting sick.