Labor Supply Effects of Social Insurance

102 Pages Posted: 21 Jun 2002 Last revised: 21 Feb 2011

See all articles by Alan B. Krueger

Alan B. Krueger

Princeton University - Industrial Relations Section; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Bruce D. Meyer

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; National Bureau of Economic Research (NBER)

Date Written: June 2002

Abstract

This chapter examines the labor supply effects of social insurance programs. We argue that this topic deserves separate treatment from the rest of the labor supply literature because individuals may be imperfectly informed as to the rules of the programs and because key parameters are likely to differ for those who are eligible for social insurance programs, such as the disabled. Furthermore, differences in social insurance programs often provide natural experiments with exogenous changes in wages or incomes that can be used to estimate labor supply responses. Finally, social insurance often affects different margins of labor supply. For example, the labor supply literature deals mostly with adjustments in the number of hours worked, whereas the incentives of social insurance programs frequently affect the decision of whether to work at all. The empirical work on unemployment insurance (UI) and workers' compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work. Most of the estimates of the elasticities of lost work time that incorporate both the incidence and duration of claims are close to 1.0 for unemployment insurance and between 0.5 and 1.0 for workers' compensation. These elasticities are substantially larger than the labor supply elasticities typically found for men in studies of the effects of wages or taxes on hours of work. The evidence on disability insurance and (especially) social security retirement suggests much smaller and less conclusively established labor supply effects. Part of the explanation for this difference probably lies in the fact that UI and WC lead to short-run variation in wages with mostly a substitution effect. Our review suggest that it would be misleading to apply a universal set of labor supply elasticities to these diverse problems and populations.

Suggested Citation

Krueger, Alan B. and Meyer, Bruce D., Labor Supply Effects of Social Insurance (June 2002). NBER Working Paper No. w9014. Available at SSRN: https://ssrn.com/abstract=316793

Alan B. Krueger (Contact Author)

Princeton University - Industrial Relations Section ( email )

Princeton, NJ 08544-2098
United States
609-258-4046 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Bruce D. Meyer

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States
(773) 702-2712 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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