Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security

Martin Barbie (), Marcus Hagedorn and Ashok Kaul ()
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Martin Barbie: University of Karlsruhe
Ashok Kaul: Saarland University

No 678, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We develop a general equilibrium stochastic OLG model with heterogenous households. Households differ with respect to their productivity. Productivity depends stochastically on parents' unobservable investment in their child's human capital and an aggregate productivity shock. We introduce a PAYG social security system that conditions benefits on the aggregate wage sum and on the wage of one's child. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it to real world systems, which typically do not condition benefits on the wages of one's children. We decompose the effects of social security on the investment in human capital into an incentive effect, an insurance effect, a redistributive effect and a general equilibrium effect. Furthermore, we discuss the effects of social security on the long run distribution of human capital. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as intragenerational insurance against human capital risk.

Keywords: human capital formation; social security; intragenerational insurance; heterogenous households (search for similar items in EconPapers)
JEL-codes: D61 H55 J24 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-12
New Economics Papers: this item is included in nep-ias and nep-lab
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Related works:
Journal Article: Fostering Within-Family Human-Capital Investment: An Intragenerational Insurance Perspective of Social Security (2006)
Working Paper: Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security
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