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

56 Pages Posted: 20 Nov 2015 Last revised: 1 Jun 2017

See all articles by Peter Haan

Peter Haan

DIW Berlin, German Institute for Economic Research; IZA Institute of Labor Economics

Victoria L. Prowse

Purdue University - Department of Economics; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

Multiple version iconThere are 3 versions of this paper

Date Written: May 30, 2017

Abstract

We analyze empirically the optimal mix and optimal generosity of social insurance and assistance programs. For this purpose, we specify a structural life-cycle model of the labor supply and savings 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 focuses mainly on social assistance, which guarantees a permanent universal minimum household income, with a minor role for temporary earnings-related unemployment insurance. Optimal social assistance is moderately generous. Reflecting that married couples obtain intra-household insurance by making labor supply choices for both spouses, we also show that the optimal generosity of social assistance is decreasing in the proportion of married individuals in the population.

Keywords: Unemployment insurance; Social assistance; Design of benefit programs; Life-cycle labor supply; Family labor supply; Intra-household insurance; Household savings; Employment risk; Added worker effect

JEL Classification: J18, J68, H21, I38

Suggested Citation

Haan, Peter and Prowse, Victoria L., Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=2692616 or http://dx.doi.org/10.2139/ssrn.2692616

Peter Haan

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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

Victoria L. Prowse (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

IZA Institute of Labor Economics

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

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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