Preferences for social insurance: the role of job security and risk propensity

Mauricio Bugarin () and Yasushi Hazama
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Mauricio Bugarin: University of Brasilia
Yasushi Hazama: Institute of Developing Economies, IDE-JETRO, Area Studies Center

Economics of Governance, 2024, vol. 25, issue 2, No 4, 233-255

Abstract: Abstract In a 2003 article, Karl Moene (University of Oslo) and Michael Wallerstein (Yale University) demonstrated that wealthier citizens tend to support higher spending in social policies directed at the unemployed, while preferring lower spending in policies aimed at the employed. This paper reveals that these findings hinge on two key assumptions: that citizens have a coefficient of relative risk aversion (CRRA) greater than one, and that all citizens face an equal probability of job loss—a presumption which is not necessarily realistic. By incorporating the observation that job security tends to correlate positively with income, we demonstrate that affluent individuals may still advocate for reduced spending in unemployment policies, even when their CRRA exceeds one. Moreover, a significant shift in the distribution of job security—such as during an abrupt economic crisis—might engender greater societal support for these policies, contrary to their previous research. Finally, empirical data from recent Brazilian history provide analytical support for the theoretical assertions presented herein.

Keywords: Risk aversion; Job security; Social insurance; Economic inequality; Economic shocks; Preference ordering reversal (search for similar items in EconPapers)
JEL-codes: D31 D72 D81 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10101-024-00313-z

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