Working Paper: NBER ID: w9199
Authors: Joseph Stiglitz; Jungyoll Yun
Abstract: This paper analyzes a social insurance system that integrates unemployment insurance with a pension program through an individual account, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving their search incentives while reducing risks. This paper identifies factors which determine the optimal degree of integration. A fully integrated system is one in which no reliance is placed at all on a separate tax-funded unemployment insurance program. We show that when the duration of unemployment is very short compared to the period of employment or retirement, the optimal system involves an exclusive reliance on pension-funded self-insurance. This system imposes a negligible risk burden for workers while avoiding attenuating search incentives. We also argue that a joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated to each other.
Keywords: unemployment insurance; retirement insurance; social insurance; integrated systems
JEL Codes: I38; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Integration of unemployment insurance with retirement insurance through individual accounts (J65) | improve search incentives for workers (J68) |
| Longer unemployment spells (J65) | increase need for tax-funded unemployment insurance (J65) |
| Integration of multiple social insurance programs through a pension system (H55) | beneficial outcomes (L21) |