When free choice turns into a pitfall: conditional social protection for immigrants in voluntary unemployment insurance systems

Abstract

Unemployment insurance systems are designed to provide income security for those who drop out of work temporarily. This form of social protection is particularly relevant for foreign-born workers who are, on average, more likely to become unemployed during layoffs. The article explores how the social protection of immigrants differs in cases where payments are tied to voluntary rather than mandatory contributions. This is done by focusing on a recent welfare reform in Sweden which led to both a sharp increase in costs and a decline in benefit generosity overnight. It is argued that migrants lost their social protection at a disproportionate rate over the course of the reform. Both their status on the labour market and position as newcomers to the norms and rules of society are expected to impede on their decision to obtain or prolong insurance membership, leading to a decline in eligibility to income security. Difference-in-difference estimates with administrative data from all unemployment insurance funds show that the share of benefit recipients with earnings-related payments decreased at a higher rate among the foreign-born as expected, especially if they had arrived in the country only recently.