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

Milan Vodopivec ()
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Milan Vodopivec: World Bank

No 3438, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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 (search for similar items in EconPapers)
JEL-codes: J65 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-lab
Date: 2008-04
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