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Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings

Author

Listed:
  • Haan, Peter

    (DIW Berlin)

  • Prowse, Victoria

    (Purdue University)

Abstract

We empirically analyze the optimal mix and optimal generosity of unemployment insurance and social assistance programs. To do so, we specify a structural life-cycle model of the labor supply, savings, and social assistance claiming decisions of singles and married couples. Partial insurance against wage and employment shocks is provided by social programs, savings, and the labor supplies of all adult household members. We show that the optimal policy mix is dominated by moderately generous social assistance, which guarantees a permanent universal minimum household income, with only a minor role for temporary earnings-related unemployment insurance. The optimal amount of social assistance is heavily influenced by income pooling in married households. This pooling provides partial insurance against negative economic shocks, reducing the optimal generosity of social assistance.

Suggested Citation

  • Haan, Peter & Prowse, Victoria, 2019. "Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings," Rationality and Competition Discussion Paper Series 189, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:189
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    2. Geyer, Johannes & Haan, Peter & Hammerschmid, Anna & Peters, Michael, 2020. "Labor Market and Distributional Effects of an Increase in the Retirement Age," Labour Economics, Elsevier, vol. 65(C).
    3. Fernández-Blanco, Javier, 2022. "Unemployment risks and intra-household insurance," Journal of Economic Theory, Elsevier, vol. 203(C).
    4. Haan, Peter & Tolan, Songül, 2019. "Labor supply and fiscal effects of partial retirement – The role of entry age and the timing of pension benefits," The Journal of the Economics of Ageing, Elsevier, vol. 14(C).
    5. Damian Pierri & Enrique Kawamura, 2022. "Life cycle, financial frictions and informal labor markets: the case of Chile," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 93-120, December.
    6. Martin Halla & Julia Schmieder & Andrea Weber, 2020. "Job Displacement, Family Dynamics, and Spousal Labor Supply," American Economic Journal: Applied Economics, American Economic Association, vol. 12(4), pages 253-287, October.
    7. Haan, Peter & Haywood, Luke & Schneider, Ulrich, 2016. "Labor Supply of Mothers: The Role of Time Discounting," VfS Annual Conference 2016 (Augsburg): Demographic Change 145751, Verein für Socialpolitik / German Economic Association.
    8. Manasi Deshpande & Rebecca Dizon-Ross, 2023. "The (Lack of) Anticipatory Effects of the Social Safety Net on Human Capital Investment," NBER Working Papers 31512, National Bureau of Economic Research, Inc.
    9. Fadlon, Itzik & Nielsen, Torben Heien, 2019. "Household labor supply and the gains from social insurance," Journal of Public Economics, Elsevier, vol. 171(C), pages 18-28.
    10. Jérôme Adda & Christian Dustmann & Joseph-Simon Görlach, 2022. "The Dynamics of Return Migration, Human Capital Accumulation, and Wage Assimilation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 2841-2871.
    11. Fischer, Björn & Haan, Peter & Sanchez, Santiago Salazar, 2022. "The effect of unemployment on care provision," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    12. Lee, Siha, 2020. "Household responses to disability shocks: Spousal labor supply, caregiving, and disability insurance," CLEF Working Paper Series 21, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    13. Siha Lee, 2024. "Spousal Labor Supply, Caregiving, And The Value Of Disability Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(4), pages 1681-1716, November.
    14. Serdar Birinci, 2019. "Spousal Labor Supply Response to Job Displacement and Implications for Optimal Transfers," Working Papers 2019-020, Federal Reserve Bank of St. Louis, revised Jan 2024.
    15. Haomin Wang, 2019. "Intra-Household Risk Sharing and Job Search over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 165-182, October.
    16. Songül Tolan, 2017. "The Effect of Partial Retirement on Labor Supply, Public Balances and the Income Distribution: Evidence from a Structural Analysis," Discussion Papers of DIW Berlin 1679, DIW Berlin, German Institute for Economic Research.
    17. Pauline Leung & Christopher O'Leary, 2015. "Should UI Eligibility Be Expanded to Low-Earning Workers? Evidence on Employment, Transfer Receipt, and Income from Administrative Data," Working Papers 591, Princeton University, Department of Economics, Industrial Relations Section..
    18. Anna Doś & Monika Wieczorek-Kosmala & Joanna Błach, 2022. "The Effect of Business Legal Form on the Perception of COVID-19-Related Disruptions by Households Running a Business," Risks, MDPI, vol. 10(4), pages 1-17, April.
    19. Das, Debasmita, 2022. "Child-rearing, Social Security and Married Women’s Labor Supply over the Life Cycle," MPRA Paper 117614, University Library of Munich, Germany, revised 10 Sep 2022.

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    Keywords

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    JEL classification:

    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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