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Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security

Author

Listed:
  • Martin Barbie
  • Marcus Hagedorn
  • Ashok Kaul

Abstract

We propose an extended PAYG social security system that conditions pension benefits on the aggregate wage sum and on the wage of one�s children. The latter increases parents� incentives to provide their children with good within-family education. However, since wages depend stochastically on parents� unobservable investment in their children�s human capital, some insurance against the productivity risk of one�s children is provided because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it to real world systems which typically do not condition benefits on the wages of one�s children. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as an intra-generational insurance against productivity risk.

Suggested Citation

  • Martin Barbie & Marcus Hagedorn & Ashok Kaul, "undated". "Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security," IEW - Working Papers 236, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:236
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    References listed on IDEAS

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    Cited by:

    1. Meier, Volker & Wrede, Matthias, 2010. "Pensions, fertility, and education," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(1), pages 75-93, January.
    2. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundations of Trust and Social Preferences," IZA Discussion Papers 1641, Institute of Labor Economics (IZA).
    3. Armin Falk & Ernst Fehr & Christian Zehnder, "undated". "The Behavioral Effects of Minimum Wages," IEW - Working Papers 247, Institute for Empirical Research in Economics - University of Zurich.
    4. Tania Singer & Ernst Fehr, 2005. "The Neuroeconomics of Mind Reading and Empathy," American Economic Review, American Economic Association, vol. 95(2), pages 340-345, May.

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    More about this item

    Keywords

    Human Capital Formation; Social Security; Intragenerational Insurance; Heterogenous Households;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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