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Integration of unemployment insurance with retirement insurance

Yun, Jungyoll; Stiglitz, Joseph E.

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.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0203-04
Published Here
March 23, 2011

Notes

September 2002

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