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Integration of Unemployment Insurance with Retirement Insurance

  • Joseph Stiglitz
  • Jungyoll Yun

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9199.

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Date of creation: Sep 2002
Date of revision:
Publication status: published as Stiglitz, Joseph E. and Jungyoll Yun. "Integration Of Unemployment Insurance With Retirement Insurance," Journal of Public Economics, 2005, v89(11-12,Dec), 2037-2067.
Handle: RePEc:nbr:nberwo:9199
Note: LS PE
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  1. Richard Arnott & Bruce Greenwald & Joseph E. Stiglitz, 1993. "Information and Economic Efficiency," NBER Working Papers 4533, National Bureau of Economic Research, Inc.
  2. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  3. Richard J. Arnott & Joseph E. Stiglitz, 1988. "The Basic Analytics of Moral Hazard," NBER Working Papers 2484, National Bureau of Economic Research, Inc.
  4. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer, vol. 6(3), pages 239-262, August.
  5. Hamermesh, Daniel S, 1982. "Social Insurance and Consumption: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 72(1), pages 101-13, March.
  6. 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.
  7. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  8. Rasmus Lentz & Torben Tranaes, 2001. "Job Search and Savings: Wealth Effects and Duration Dependence," CESifo Working Paper Series 461, CESifo Group Munich.
  9. Arnott, Richard J & Stiglitz, Joseph E, 1985. "Labor Turnover, Wage Structures, and Moral Hazard: The Inefficiency of Competitive Markets," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 434-62, October.
  10. Richard Arnott & Joseph Stiglitz, 1990. "The Welfare Economics of Moral Hazard," NBER Working Papers 3316, National Bureau of Economic Research, Inc.
  11. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
  12. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  13. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
  14. 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.
  15. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Narayana Kocherlakota, 2004. "Figuring out the Impact of Hidden Savings on Optimal Unemployment Insurance," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 541-554, July.
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