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Unemployment Accounts

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  • Ofer Setty: Tel Aviv University

Abstract

Unemployment Accounts (UA) are mandatory individual saving accounts that can be used by governments as an alternative to the Unemployment Insurance (UI) system. The goal of this paper is to study the welfare implications of a shift from the current UI system to a new UA system in the United States. The UA system works as follows. During employment, the worker is mandated to make deposits into the individual saving account. The worker is entitled to withdraw payments from this account only during unemployment. In contrast, UI is funded by a payroll tax and provides benefits for a limited duration. I build an heterogeneous agents, incomplete-markets life-cycle model, in which workers face income fluctuations and unemployment shocks. UI is modeled as a choice of a replacement rate, and a time limit of unemployment benefits. UA is modeled as a choice of a deposit rate into the account during employment and a withdrawal rate during unemployment. Qualitatively, a shift from UI to UA can lead to either a welfare gain or a welfare loss depending on the role of frictions and incentives in the model. This observation puts the paper at the nexus of the macroeconomic debate on the level of disutility from work. Quantitatively, for a plausible parameterization the shift from UI to UA leads to an average welfare gain of 0.9\% of lifetime consumption.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 204.

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Date of creation: 2011
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Handle: RePEc:red:sed011:204

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  1. Martin Feldstein & Daniel Altman, 1998. "Unemployment Insurance Savings Accounts," NBER Working Papers 6860, National Bureau of Economic Research, Inc.
  2. Greg Kaplan, 2011. "Inequality and the Lifecycle," PIER Working Paper Archive 11-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. repec:hal:cesptp:halshs-00196183 is not listed on IDEAS
  4. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series WP-05-09, Federal Reserve Bank of Chicago.
  5. Setty, Ofer, 2009. "Optimal Unemployment Insurance with Monitoring," MPRA Paper 18188, University Library of Munich, Germany.
  6. Nicola Pavoni & G. L. Violante, 2007. "Optimal Welfare-to-Work Programs," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 283-318.
  7. Julio Davila & Jay H. Hong & Per Krusell & Jose-Victor Rios-Rull, 2005. "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," PIER Working Paper Archive 05-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  8. Atila Abdulkadiroglu & Burhanettin Kuruscu & Aysegul Sahin, 2002. "Unemployment Insurance and the Role of Self-Insurance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 681-703, July.
  9. Lars Ljungqvist & Thomas J. Sargent, 2008. "Two Questions about European Unemployment," Econometrica, Econometric Society, vol. 76(1), pages 1-29, 01.
  10. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
  11. Martin Browning & Thomas Crossley, . "Unemployment Insurance Benefit Levels and Consumption Changes," Canadian International Labour Network Working Papers 25, McMaster University.
  12. Williamson, Stephen D. & Wang, Cheng, 1999. "Moral Hazard, Optimal Unemployment Insurance, and Experience Rating," Working Papers 99-03, University of Iowa, Department of Economics.
  13. Abraham, Arpad & Pavoni, Nicola, 2004. "Efficient Allocations with Moral Hazard and Hidden Borrowing and Lending," Working Papers 04-05, Duke University, Department of Economics.
  14. Robert Shimer & Ivan Werning, 2005. "Liquidity and Insurance for the Unemployed," NBER Working Papers 11689, National Bureau of Economic Research, Inc.
  15. Martin Feldstein, 2005. "Rethinking Social Insurance," NBER Working Papers 11250, National Bureau of Economic Research, Inc.
  16. Carroll, Christopher D., 2005. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," CFS Working Paper Series 2005/18, Center for Financial Studies (CFS).
  17. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
  18. Joseph Stiglitz & Jungyoll Yun, 2002. "Integration of Unemployment Insurance with Retirement Insurance," NBER Working Papers 9199, National Bureau of Economic Research, Inc.
  19. Brown, Alessio J. G. & Orszag, Mike & Snower, Dennis J., 2006. "Unemployment Accounts and Employment Incentives," IZA Discussion Papers 2105, Institute for the Study of Labor (IZA).
  20. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
  21. Christian Zimmermann & Stephane Pallage, 2007. "Unemployment Benefits vs. Unemployment Accounts: A Quantitative Exploration," 2007 Meeting Papers 784, Society for Economic Dynamics.
  22. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  23. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September.
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