Integration of Unemployment Insurance with Retirement Insurance

57 Pages Posted: 14 Sep 2002 Last revised: 29 Oct 2010

See all articles by Joseph E. Stiglitz

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Jungyoll Yun

Independent

Date Written: September 2002

Abstract

This paper analyzes a social insurance system that integrates unemployment insurance with a pension program through an individual account, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving their search incentives while reducing risks. This paper identifies factors which determine the optimal degree of integration. A fully integrated system is one in which no reliance is placed at all on a separate tax-funded unemployment insurance program. We show that when the duration of unemployment is very short compared to the period of employment or retirement, the optimal system involves an exclusive reliance on pension-funded self-insurance. This system imposes a negligible risk burden for workers while avoiding attenuating search incentives. We also argue that a joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated to each other.

Suggested Citation

Stiglitz, Joseph E. and Yun, Jungyoll, Integration of Unemployment Insurance with Retirement Insurance (September 2002). NBER Working Paper No. w9199. Available at SSRN: https://ssrn.com/abstract=330338

Joseph E. Stiglitz (Contact Author)

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National Bureau of Economic Research (NBER) ( email )

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Jungyoll Yun

Independent ( email )

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