How Viable are Unemployment Insurance Savings Accounts: Simulation Results for Slovenia

51 Pages Posted: 23 May 2008

See all articles by Milan Vodopivec

Milan Vodopivec

World Bank - Human Development Network; IZA Institute of Labor Economics

Abstract

By simulating the working of the unemployment insurance savings accounts (UISAs) in Slovenia using a methodology similar to Feldstein and Altman (1998), the paper examines two questions: how viable is this system as an alternative to traditional unemployment insurance (UI) system, and how the redistribution of income changes if the UI system is replaced by UISAs. The simulations are performed on a representative sample of labor force participants, for which lifetime labor market histories are generated from administrative panel data. Simulations show that the UISA system is a viable alternative to a modest UI system, but that its viability is jeopardized under generous benefits. Under the modest regime (here identified with a post-1998 period, the period after the UI reform which strongly reduced the maximum potential duration of benefit, for most workers even by half) our calculations show that only one quarter of workers end their working life with negative cumulative balance and 43 percent ever experience a negative UISA balance - in contrast, under the generous regime (here identified with the pre-1998-reform period), 49 percent of workers end their working life with negative cumulative balance and 66 percent ever experience a negative balance. Moreover, under the modest benefit regime workers are better able to recover positive UISA balance. The simulations also show that the level of redistribution under the UISAs lags substantially behind the UI system, even though the version of the UISAs studied permits borrowing and hence allows for redistribution.

Keywords: unemployment insurance, unemployment insurance savings accounts

JEL Classification: J65, C23

Suggested Citation

Vodopivec, Milan, How Viable are Unemployment Insurance Savings Accounts: Simulation Results for Slovenia. IZA Working Paper No. 3438, Available at SSRN: https://ssrn.com/abstract=1136243 or http://dx.doi.org/10.2139/ssrn.1136243

Milan Vodopivec (Contact Author)

World Bank - Human Development Network ( email )

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Washington, DC 20433
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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