Inequality & Unemployment, Redistribution & Social Insurance, and Participation: A Theoretical Model and an Empirical System of Endogenous Equations

Abstract:     
Conflicts of interest over the generosity and structure of redistribution and social insurance (call these jointly: social policy) include that between the relatively poor and wealthy - which theoretically produces the famous median-voter result that democratic demand for broad redistribution increases in the income skew - and that between the safely employed and the unemployed and precariously employed - which yields a different theoretical result, namely that inequality reduces median-voter demand for social insurance. In each case, the generosity and structure of social policy may itself affect simultaneously the efficiency of the labor market and the political participation of society's less fortunate, which affects the identity and so the income and job-security status of the median voter. These considerations imply several endogenous relationships between economic performance (employment/income level and distribution), social policy (redistribution and social insurance), and political participation. This paper will elaborate the theoretically expected nature of these endogenous relationships, suggest identification conditions that derive from the theory and substance, and offer empirical estimates of the resulting system of equations.

Number of Pages in PDF File: 41

Keywords: Redistribution, Social Insurance, Inequality, Unemployment, Participation, System of Equations

JEL Classification: C30, H53, H55, J65

Accepted Paper Series