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We analyze empirically the optimal design of social insurance and assistance programs when families obtain insurance by making labor supply choices for both spouses. For this purpose, we specify a structural life-cycle model of the labor supply and savings decisions of singles and married couples. Partial insurance against wage and employment shocks is provided by social programs, savings, and the labor supplies of all adult household members. The optimal policy mix focuses mainly on Social Assistance, which provides a permanent universal household income floor, with a minor role for temporary earnings-related Unemployment Insurance. Reflecting that married couples obtain intra-household insurance by making labor supply choices for both spouses, the optimal generosity of Social Assistance decreases in the proportion of married individuals in the population. The link between optimal program design and the family context is strongest in low-educated populations

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  • Peter Haan

    (FU Berlin)

  • Victoria Prowse

    (Cornell University)

Abstract

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  • Peter Haan & Victoria Prowse, 2015. "We analyze empirically the optimal design of social insurance and assistance programs when families obtain insurance by making labor supply choices for both spouses. For this purpose, we specify a str," Upjohn Working Papers 15-240, W.E. Upjohn Institute for Employment Research.
    • Handle: RePEc:upj:weupjo:15-240
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    References listed on IDEAS

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    1. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, July.
    2. Robert Shimer & Ivan Werning, 2008. "Liquidity and Insurance for the Unemployed," American Economic Review, American Economic Association, vol. 98(5), pages 1922-1942, December.
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    More about this item

    Keywords

    Life-cycle labor supply; Family labor supply; Unemployment Insurance; Social Assistance; Design of benefit programs; Intra-household insurance; Household savings; Employment risk; Added worker effect;
    All these keywords.

    JEL classification:

    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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