Applied Seminar

Peter Backus

University of Manchester


Vicens Vives – 14:30


Why do employed people support a public system of unemployment benefits? In this paper we empirically test for the presence of public goods and insurance motivations underlying declared preferences for redistribution. Using a newly constructed data set and instrumental variable estimation, we exploit a particularity of the Spanish labour market to empirically disentangle the motivations underlying redistributive preferences. We consider redistribution in the form of unemployment benefits and estimate how workers’ preferences for unemployment spending change given changes in the local unemployment rate. We find evidence that the preferences for unemployment benefits spending by workers with little to no risk of becoming unemployed themselves does not respond to changes in the local unemployment rate. However, the preferences of workers who do face the risk of becoming unemployed, do exhibit sensitivity to changes in the unemployment rate. We show how these results suggest that preferences for redistribution in the form of unemployment benefits are driven by insurance considerations rather than by any public goods consideration.

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