Unemployment Accounts and Employment Incentives
Alessio J.G. Brown
Kiel Institute for the World Economy
J. Michael Orszag
Willis Towers Watson - Reigate (Surrey Office); Institute for the Study of Labor (IZA)
Dennis J. Snower
University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
CEPR Discussion Paper No. 5692
We explore the far-reaching implications of replacing current unemployment benefit (UB) systems by an unemployment accounts (UA) system. Under the UA system, employed people are required to make ongoing contributions to their UAs and the balances in these accounts are available to them during periods of unemployment. The government is able to undertake balanced-budget interpersonal redistributions among the UAs. At the end of their working lives, people could transfer the remaining balances on their UAs into their pensions. We present an analytical framework to analyse the incentive effects of UAs and calibrate our model for the high unemployment countries of Europe. Our results suggest that this policy reform would significantly change people's employment incentives and could achieve reductions in unemployment without reducing the level of support to the unemployed.
Number of Pages in PDF File: 26
Keywords: Unemployment benefits, unemployment accounts, redistribution, employment, unemployment
JEL Classification: I38, J22, J32, J38, J64, J65, J68
Date posted: August 4, 2006
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