Do interactions between unemployment insurance and sickness insurance affect transitions to employment?

Previous research suggests that there are substantial interactions between the un­­­­em­­ployment insurance (UI) and the sickness insurance (SI) in Sweden. Mo­ral ha­­zard arises in the interplay between these two social insurance systems, since by re­por­ting sick an unemployed person can postpone the UI expiration date and some­times also re­­ceive considerably higher benefits. This paper exa­mines whe­ther these inter­ac­­tions affect the transition rate from unemployment to em­ploy­ment. To stu­dy this question I utilize a reform which great­­ly re­­duced the incentives for un­em­ployed persons to transfer to the SI. While there is evi­dence that this reform sub­stantially lowered the incidence of sick re­ports among the un­em­ployed, I find no evidence suggesting that the reduced sick re­port rate in turn affected the transition rate to employment.

Keywords: Unemployment insurance, sickness insurance, unemployment duration, health, duration analysis.
JEL-codes: C41, J64, J65, H55, I18