Working Paper: NBER ID: w11708
Authors: Raj Chetty; Adam Looney
Abstract: This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient \nsmoothing methods.
Keywords: social insurance; income risk; Indonesia; United States; welfare consequences
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment (J64) | food consumption (D12) |
| unemployment (J64) | reliance on costly consumption smoothing methods (D15) |
| lack of formal unemployment insurance (J65) | reliance on costly consumption smoothing methods (D15) |
| social insurance programs (H55) | reduction in reliance on costly consumption smoothing methods (D15) |
| unemployment (J64) | reduction in expenditures on children's education (H52) |
| unemployment (J64) | increase in labor supply among family members (J22) |