Welfare Effects of Integrated Social Insurance System

Sung Kim (), Joseph Stiglitz and Jungyoll Yun
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Jungyoll Yun: Ewha Womans University

Korean Economic Review, 2006, vol. 22, 197-231

Abstract: This paper explores the optimal social insurance system against unemployment both theoretically and empirically. Using a simple theoretical framework we show that unemployment insurance provides insurance against unemployment risk and enhances distributional equity, whereas selfinsurance through borrowings promotes intertemporal consumption smoothing and maintains incentives of individuals. Then we use Korean and U.S. panel data sets to simulate the welfare effects of various insurance systems. Simulation results demonstrate that the intertemporal income smoothing effect of self-insurance is fairly strong: even for a small degree of moral hazard associated with UI, increasing the portion of self-insurance improves social welfare. This continues to hold even when the government provides some retirement subsidy to poor individuals unless the moral hazard created by government policies is very serious. We also discuss some interesting differences between Korean data-based analysis and U.S. data-based analysis.

Keywords: unemployment insurance; self insurance; pension savings; moral hazard; simulation; panel data (search for similar items in EconPapers)
JEL-codes: H55 J26 J65 (search for similar items in EconPapers)
Date: 2006
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