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Welfare Effects of Integrated Social Insurance System

Author

Listed:
  • Sung Hyun Kim

    (Ewha Womans University)

  • Joseph Stiglitz

    (Columbia University)

  • Jungyoll Yun

    (Ewha Womans University)

Abstract

This paper explores the optimal social insurance system against unemployment both theoretically and empirically. Using a simple theoretical framework we show that unemployment insurance provides insurance against unemployment risk and enhances distributional equity, whereas selfinsurance through borrowings promotes intertemporal consumption smoothing and maintains incentives of individuals. Then we use Korean and U.S. panel data sets to simulate the welfare effects of various insurance systems. Simulation results demonstrate that the intertemporal income smoothing effect of self-insurance is fairly strong: even for a small degree of moral hazard associated with UI, increasing the portion of self-insurance improves social welfare. This continues to hold even when the government provides some retirement subsidy to poor individuals unless the moral hazard created by government policies is very serious. We also discuss some interesting differences between Korean data-based analysis and U.S. data-based analysis.

Suggested Citation

  • Sung Hyun Kim & Joseph Stiglitz & Jungyoll Yun, 2006. "Welfare Effects of Integrated Social Insurance System," Korean Economic Review, Korean Economic Association, vol. 22, pages 197-231.
    • Handle: RePEc:kea:keappr:ker-200612-22-2-01
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    References listed on IDEAS

    as
    1. Stiglitz, Joseph E. & Yun, Jungyoll, 2005. "Integration of unemployment insurance with retirement insurance," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2037-2067, December.
    2. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, vol. 48(2), pages 491-503, March.
    3. Flemming, J. S., 1978. "Aspects of optimal unemployment insurance : Search, leisure, savings and capital market imperfections," Journal of Public Economics, Elsevier, vol. 10(3), pages 403-425, December.
    4. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Martin Feldstein & Daniel Altman, 2007. "Unemployment Insurance Savings Accounts," NBER Chapters, in: Tax Policy and the Economy, Volume 21, pages 35-64, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    unemployment insurance; self insurance; pension savings; moral hazard; simulation; panel data;
    All these keywords.

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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