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Regional & Federal Studies ISSN: 1359-7566 (Print) 1743-9434 (Online) Journal homepage: https://www tandfonline com/loi/frfs20 Unemployment benefits and activation in federal welfare states: An institutional moral hazard perspective Christiaan Luigjes Frank Vandenbroucke To cite this article: (2020): DOI: 10 1080/13597566 2020 1751127 link to https://doi org/10 Published online: 15 Apr Submit your article journal View related articles Crossmark data Full Terms Conditions of access use can be found at com/action/journalInformation?journalCode=frfs20 REGIONAL AND FEDERAL STUDIES benefits AISSR University Amsterdam Netherlands KEYWORDS Institutional hazard; multi-tiered states; intergovernmental relations; federalism; unemployment insurance; social assistance; active labour market policies Introduction Since the 1990s subnational1 governments have become more involved ‘regulation unemployment’ i e design implementation financing unemployment-related This trend is reorientation towards ‘active’ states specifically adoption Active Labor Market Policies (ALMPs) (Finn 2000; Sabatinelli 2010) There a growing literature on relations policy (Kazepov 2010; Obinger Leibfried Castles 2005; Van Berkel De Graaf Sirovátka 2011a) Intergovernmental tensions over burden- sharing regulation (Bonoli Trein 2016; Bonoli Natili 2019) coordination challenges (Øverbye et al are well-documented We analyze how decentralization weaken incentives for subnational minimize risk unemploy- ment either through lax federally financed CONTACT chrisluigjes@protonmail com Nieuwe Achtergracht 166 1018WV © Informa UK Limited trading as Taylor Francis Group benefit schemes or shifting caseloads from Such ‘institutional hazard’ goes beyond conflicts about ‘which government pays what’; it profound effects solidarity functioning In Section one we hypothesize that (IMH) affects hypothesis confirmed three case studies: Switzerland Belgium United States (US) (Section three) IMH these federations but its form remedies applied differ four develops general propositions factors influencing perception problem actual remedies: generosity insurance constitutional context autonomy interregional differences Also distinguish two types by control unemployment: those concern interpretation ‘insurance contracts’ fundamental regarding legiti- macy conclude formulating research agenda conceptualized federal-subnational against costs associated with unem- ployment If responsibilities regu- lation such negatively affect reduce ‘institutional’ emerges Our (A) (B) consequential division especially However issue has not been sys- tematically theorized Beyond deductively testing presence our primary aim inductive theory-building: develop explain variation intergo- vernmental respond by-product While past focused substance body addresses governance aspects including multilevel Leib- fried The sub- stance each other (Van Borghi 2007); substantive away passive income-replacement went hand-in-hand tendency decentralize Decentralizing thought increase their efficiency vis- à-vis central one-size-fits-all approach (López-Santana 2015 11) fits within broader introducing New Public Management (NPM) (Weishaupt NPM tools – perform- ance management help policy-makers coordinate between standar- dized logic administration individualized flexible delivering services (Karjalainen also result clashes interests Fiscal federalism shows sometimes engage opportunistic behaviour an attempt shift another level premised assumption ceteris paribus motivated desire relax own budget constraints (Weingast 2009 283) NPM- used steer changing Importantly zero-sum game; downward trans- fer counterintuitively stronger albeit indirect (Minas Wright 2012) Because inherent ambiguity processes will define con- ditions under which occur But before do must itself Moral ability insured party influence probability loss cost lower than expected gain (Barr 2012 92–93) frame analysis terms ‘moral because characterized risks Rather seeing mostly influenced macroeconomic paradigm emphasizes individ- ual’s responsibility find work (Dean 2007) From ALMPs mitigate individual-level pro- vided When responsible national bear fiscal conse- quences if (partly) financial situated focus forms 2 First ‘ineffective activation’ whereby meet expectations reduction second ‘dumping’ beneficiaries subnationally For necessary tasked particular 3 distinguishes adminis- trative political 14–16) Incen- tives ineffective arise when finances individual scheme while govern- ments activating instance ‘park’ grams little them get back Incentives dumping subna- tional fund encourage applicants apply instead Dumping way balance objectives ‘owning’ enhances legitimacy avoiding budgetary discusses ways try ensure compliance goals (Braun 2014 806; 2008 396) Inspired identify IMH: minimum requirements Insurance implies existence contract regulates pay-outs conditions Financial and/or structure make finance part sensitive outcomes might stop provide lump-sum block grants governments; decouples number Minimum codify responsibil- ities performance example oblige gov- ernment certain achieve targets degree ‘contract’ codified determines Admittedly metaphor limitations: entities pay specific identifiable premium’ return coverage cases test analyzing where relevant devolved governments: US developing affecting salience think decentralized unitary countries expect dynamic most pronounced reasons likely significant Second contrast competencies often constitutionally guaranteed cannot recentralize discretionary manner Øverbye (UI) American UI shared state all assistance (SA) therefore present short ‘most cases’ regard heterogeneity constituent units methods burden-sharing 4 These could possibility remedy extent challenge proposed represent North-American country non-EU European EU Member State By applying case-design whether holds different contexts maximize range policy-experiences draw lessons claims theory-building (Rohlfing 84–90) section attempts centralizing cantonal SA were relatively unsuccessful limited cantons able ‘dump’ programs discuss concerns perverse interactions designed (or ‘insured’) Activation administrative historically municipal Hence no incentive activate benefici- aries effectively 1995 following crisis started emphasize transferred municipalities had create new offices assumed intention was centralize man- agement standards enrollments seen too rigid subopti- mal (Duell 2010 51) Other proposals strengthen imposition output-based (Ehrler Sager 2011 162) Instead introduced relaxed measurement backed up (cantonal) peer-review system (Bertozzi Ross 146) Originally paired bonus/malus several questioned validity indicators underpinning element quietly dropped 15) very success- ful Currently legislation prescribes require- policy-behaviour broad stark strat- egies persist 146–148; Duell 49) lacks bite relies publishing reviews Unlike every respect Cantonal still diverse cerned fragmented nature necessarily same being concerned generated fragmentation led serve both Therefore prioritize caseload Furthermore grew Champion 9–11) since job cre- ation requalify actively assisted filing disability insur- even paid legal fees appeal dismissal 10) Between 1990 2003 nearly doubled size (Champion 124) interpreted Cantons perceived correct application law prompted centralization mid-2000s 14–15) met resistance Centralization ultimately proved limiting high; eventually stopped rising diminished urgency 16) opted collaboration themselves produced non-binding inter- guidelines did something harmonize limit per- verse utilized using activation-funds decided co-finance provided ben- eficiaries contributions capped 53–55) changed eligibility cri- teria 2004 largely preventing transfers 2016 609) Third tightened criteria support starting affected Swiss worried policy- makers address Despite strong successful protect- ing Moreover potential canto- nal however suc- cessful closing off conflict strengthening major changes occurred acti- vation recent reform relative lack respon- sibilities regional 1980s; yet charge monitoring job-search sanction- regions wanted ‘positive’ disconnected sanctions 1999 Verhofstadt launched ‘active state’ became salient disparities employment strategies they adopted ernments deeply Flemish nationalism increasingly fers Wallonia (Béland Lecours 2005 273) Brussels ‘a culture dependency’ 273); nationalists only ended splitting secur- ity Walloon argued comparatively high rates due exogenous circumstances deindus- trialization migration II negotiated federal-regional cooperation agreement based detailed resulted consistent effort intensified convergence organization (Vandenbroucke 60) agree- explicitly addressed via strict It established close-monitoring gradual sanctioning individuals Although considered ‘second-best solution’ 2007): ideally instruments punitive ones concentrated into effect decentra- lized activation: normative framework included transfer until then partly include again; accompanied gained compe- tencies treatment unemployed people remained prolonged indefinitely play marginal role co-insured least 50–65 percent rest organized funded left considerable Traditionally clients’ well- 2002 shifted discourse (De Bie Vandenbussche 2016) Nevertheless vague untouched Municipalities (Bogaerts Hermans 2005) Notwithstanding munici- pal co-financing there structural federal-municipal mission information concerning With took former regulating unchanged implement retain partial Even though may better equipped integrate overall (compared government) so Addition- ally common practice persons allowed times promoted regarded contrary polarized public debate far combination inter-municipal (via funding) entrenched fabric whilst inter-regional soli- darity controversial many years Belgian demonstrates importance versus reluctant restrict autonomy; first impact next 1996 Political federal-state imposes important parameters (e g generosity) set payroll tax employers trust funds taxes keep low possible pressure depleted steps prevent relying backstop loan repaid continues borrow year ‘penalty rates’ putting refill So principle mitigates penalty meant maintain ade- quate solvency penalties borrowing adapted 1983 Subsequently vast majority (non-binding) (GAO 10–12); during Great Recession 36 Additionally levels rise extraordinarily fast extends During previous extended maximum duration 26 99 weeks 5 Thus regain some increased restricted reduced state-level does Obama defined condition circumvented ending after free Again aimed efforts (Klerman 2013) economic stabilization function reliance funding dollars flowing legitimated stricter subsided consensus quickly dissipated residual targeted Before main program (Aid Families Dependent Children AFDC) implemented regulatory families children notably single mothers Benefits co- 50 almost 85 depending actors AFDC-case- loads At time agitation resonated (Haskins 2006 35) case- constraining AFDC transformed grant: Temporary Assist- Needy (TANF) legislated mandatory time-limits TANF dur- longer ‘the promise greater outlays dollars’ (Hoke 1998 120) politi- cal greatly expanded Initially shrunk enormously reductions levelled 2000 easily loop- holes (Germanis newfound enabled redirect grant supplant- existing expenditures 32) operated prerogative 2001 Bush substantially move overreach waged watered-down version initial proposal finally passed (Allard lot ‘slush fund’ 40 53) government’s State-run interact SA-adjacent AFDC/TANF Sup- plemental Security Income (SSI) early SSI exploded (Berkowitz DeWitt 2013 181–183) Caseload contributing factor (Kubik 2003) measures (Rogowski 2002) making difficult Over gains beneficiary evidence suggests continued (Wamhoff Wiseman 2006) interacts food stamps (Supplemental Nutrition Assistance Program SNAP) completely regulated (Moffitt 2015) A study finds portion savings cash replaced SNAP (Parolin Some issues noted reports appetite rather resolve involves sophisticated AFDC- transformation combines switch co-insur- seems unable there- fore closely guarded Discussion confirmed: reforms guise remedied differed summarize similarities formulate Similarities generous (Table 1); here domi- nant worries normal Table 1 Overview periods discussed Gross replacement Maximum Expenditure % Country Time period ratea GDPb (1995) Reform (1999– 30% 29–37% 104 0 9% 4–1 0% 2008) Cooperation (2003–2004) Sixth (2009–2011) Extended emergency (2008–2014) 42% Unlimited* 8% 37–38% 3–3 1% 23%** 4% Benefit average wagec GDPd Debate (2004–2008) Constitutional 21–28 6%** Unlimited 2–0 21–22 2%** 3–0 26.8 %** 5% AFDC-TANF (1995–1996) Not available No 3% reauthorization (2005) limit: 60 months aOECD tax-benefit database: (summary measure entitlements) gross earnings family situations durations 2007 bSOCX (10-7-1-1-1) 1990–2013 cOECD amounts head household + spouse percen- tage wage US: child aged 3–12 percentage Michigan dSOCX income maintenance (10-9-1-1-1/2/3/4 includes spending USA 1995: 10-5-1-1-1 10-7-1-1-2 1997-2012: 10-5-1-1-2 10-7-1-1-3 19 = missing) 1990–2012 *Contingent renewal authorities **Nearest 6 interesting fiercely politicized possibly received attention explained difference Another explanation structurally unequal Belgium: concomitant redistribution resisted Especially long prerogative: unconstitutional thwarted name state-led lations 7 subsequent modest drawn-out struggle And agreements unilateral dictates blematized varies Interactions prominent subject disputes closed pathways Similar gone uncontested unusual feature fact instrument protection: generally accepted cover- age proper universal Factors not) sensitivity 1) 8 increases effective higher 2) demonstrate ‘Owning’ why triggers governmental balanced tread lightly Partly Generosity Ungenerous Generous Low salience: Moderate High reflects realities constrained hard overcome chal- lenges vis-à-vis contentious matter shy illustrated Overall contention auton- omy less rely experience employ- contribute permanent redistributive transfers; undermines notion insurance-based chimes Trein’s expectation heterogeneous collective identities clear distinctions net-payers net-receivers (Trein 2019 6–7) differ- ences convey idea causal regardless accurate heightened turn push confront posit differs SA-related inclined pol- itical identified above benefits; having complex needs allow dealing 288; 2011b 241) local historical pedigree initiatives partially seem prefer limits allows contract’ Disentangling manifestation true inevitably liable fuels poor record emphasized emerge monitor Specifically argue (proposed) valid gage Whether constitute ‘interpretation’ acting spirit letter type arises imposed tract’ ‘overreach’ saw dictate debates put what viola- tion Conclusion increasing emphasis ten- dency resulting conceptualize contracts; tension unconcerned empha- sized explaining cases: Further- challenges: question tract; fundamentally reject authority regulate Further needed capacity Central faced probably findings ‘risk- sharing’ Monetary Union creation Eurozone re-insurance (European Commission 2017 25–26) dominated domestic would pooled across EMU [reference deleted review] benchmarking formance integration traditional core powers EU-level (Genschel Jachtenfuchs 2018) mix examined paper required feasible establish Euro- zone miti- gated degree: render impossible areas responsi- bilities long-term care elderly (Vabo (and how) domain 9 Notes 1. purposes ‘subnational’ refers elements 2. weak education icies involve bureaucratic developed direct politically 3. (López- Santana Once absolute branches institutions (intra- decentralization) non-governmental parties (delegation) principal-agent theories appropriate 4. See online appendix B comparison 5. refer Emergency Compensation 6. conditionality uncon- troversial crises 6) 7. clear-cut dichotomy choosing mutually exclusive 8. qualitative assessments 9. healthcare ‘risks’ materializing mainly curative; need take Disclosure Statement interest reported author(s) Funding supported Commission: [grant VC/2015/0006] References Allard S “The Changing Face Welfare Administration ” Publius: Federalism 37 (3): 304–332 Barr N Economics 5th ed York: Oxford Press Béland D “Nationalism Policy Development: Social 25 (2): 265–285 Berkowitz E L Welfare: Supplemental U Ithaca: Cornell Bertozzi F G Road Activation: Legal Aspects Implementation Outcomes Bringing Jobless Into Work? 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