Manipulation and Selection in Unemployment Insurance

In this paper we study the selection patterns of individuals who manage to have their layoff delayed around an age-at-layoff threshold entitling them to four additional months of unemployment insurance (UI), i.e. manipulators. Using administrative data from Italy and bunching techniques, we document substantial manipulation around the cutoff and show that manipulators are selected on their long-term nonemployment risk but not on their moral hazard cost. Finally, we develop a sufficient statistics framework to assess how these findings affect optimal UI duration in presence of manipulation.