The punishment of unemployment insurance cheaters

A worker on unemployment insurance is supposed to actively look for a job and accept suitable job offers. If caught cheating, one is subject to penalties, going from forfeiting future eligibility to repaying received benefits and more. But there could be indirect consequences as well.

Gerard van den Berg and Johan Vikström use Swedish data to study the impact of cheating on the future labor market history of a cheater. It looks like a stigma is at work, as future jobs are likely to be paying less and even in a lower occupational level. The latter is quite important, as it implies a human capital loss that has consequences throughout the remaining working life.

The analysis is based on comparing he jobs before and after the unemployment spells. Van den Berg and Vikstr&oum;l also observe the job several years later to see whether there is any persistence, and there is. I am, however, not sure on how to interpret the results. One could view them as the consequence of a stigma, that the worker is not reputable and only worse jobs get offered to him. But it could also be that he scrambles to accept the first offer after being sanctioned, either because of the reduction in benefits or as a natural reaction after being caught with the hand in the cookie jar. The first interpretation means that the sanction leads to a societal welfare improvement: there is a clear signal about the quality of the worker. The contrary applies to the second interpretation, as it seems a mis-allocation of talent is at work. It would be important to sort that out.