Identifying Selection in Social Insurance: Risk-based Selection and Selection on Moral Hazard

Mette Ejrnaes and Stefan Hochguertel
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Mette Ejrnaes: Department of Economics, University of Copenhagen
Stefan Hochguertel: Department of Economics, Vrije Universiteit Amsterdam

No 26-10, CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI)

Abstract: We investigate selection into a voluntary unemployment insurance (UI) scheme by exploiting variation in enrollment driven by an early retirement program embedded within the UI system. Using Danish administrative data and an event study design, we identify negative selection among UI enrollees with respect to subsequent unemployment risk. Our analysis distinguishes between risk-based selection and selection on moral hazard. We find that risk-based selection accounts for approximately two percentage points, while the selection on moral hazard is about one and a half percentage points. Together, these effects explain two-thirds of the observed difference in unemployment risk between insured and uninsured individuals. Quantitatively, selection on moral hazard is nearly as important as risk-based selection.

Keywords: Unemployment; insurance; selection (search for similar items in EconPapers)
JEL-codes: C23 D82 J64 J65 (search for similar items in EconPapers)
Pages: 68
Date: 2026-05-27
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