Integration of unemployment insurance with retirement insurance

This paper analyzes a social insurance system that integrates unemployment insurance with a pension program, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment. This paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration. We show that when the duration of unemployment is very short compared to the period of employment or retirement, the optimal system involves exclusive reliance on pension-funded self-insurance. This system imposes a negligible risk burden for workers while avoiding attenuating search incentives. We also argue that joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated with each other.     

Employer matching and 401(k) saving: Evidence from the health and retirement study

Employer matching of employee 401(k) contributions is often touted as a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent econometric specification of 401(k) saving and estimates the determinants of saving accounting for non-linearities in the household budget set induced by matching. The participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 5 percentage points. The parametric and semi-parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $365 (in 1991 dollars). Overall, the analysis reveals that the 401(k) saving response to matching is quite inelastic, and, hence, matching is a rather poor policy instrument with which to raise retirement saving.     

Old-age benefits and retirement decisions of rural elderly in Brazil

I estimate the impact of social security benefits on retirement decisions of rural workers by studying changes in the rules governing old-age benefits for rural workers in Brazil. I focus on a reform implemented in 1991, which reduced the minimum eligibility age, increased benefits, and extended the program to non-heads of households. Because those benefits come with no strings attached — they are not means or retirement tested — any behavioral response is a pure income effect. The main finding of the paper is that access to old-age benefits is a strong determinant of retirement of rural workers in Brazil: receiving old-age benefits increases the probability of not working by about thirty-eight percentage points and reduces total hours per week by 22½ h.     

The micro-firm health insurance hypothesis

The objective of this study is to investigate the ‘micro-firm health insurance hypothesis’, a hypothesis that the greater the percentage of domestic firms that are ‘very small’, i.e. have four or fewer employees, the greater the percentage of the US population that will be without health insurance. The focus of this study is based on the premise that very small firms (as defined), ‘micro-firms’, which constitute 58.6% of all private sector firms in the US, face bargaining-power, financial, and competitive constraints that tend to limit their ability to provide group health insurance benefits to their employees, with the result being that employees at very small firms are relatively more likely than employees at larger firms to be without a health insurance fringe benefit. Weighted Least Squares (WLS) estimates provide strong empirical support for the hypothesis.     

The choice to cash out pension rights at job change or retirement

Most pension plans allow a lump sum distribution upon job separation, enabling a subsequent cash-out. In the 1992–2000 HRS, 13% of entitlements were cashed-out, representing 5.3% of entitlement dollars. Among plans with a lump sum option, 20% were cashed out. Cash-outs can be rational and we broadly confirm hypotheses for cash-out determinants, but not that individuals with short expected longevity should wish to disproportionately cash out. Fears of adverse selection into the pool of pensioners with annuity income thus appear unfounded. While we find only limited leakage, it is concentrated among individuals vulnerable to poverty in old age.     

The determinants of the demand for private health insurance under Medicare

Since the introduction of Medicare in 1984, the proportion of the Australian population with private health insurance has declined considerably. Insurance for health care consumption is compulsory for the public health sector but optional for the private health sector. In this paper, we explore a number of important issues in the demand for private health insurance in Australia. The socio-economic variables which influence demand are examined using a binary logit model. A number of simulations are performed to highlight the influence and relative importance of various characteristics such as age, income, health status and geographical location on demand. A number of important policy issues in the private health insurance market are highlighted. First, evidence is provided of adverse selection in the private health insurance pool, second, the notion of the wealthy uninsured is refuted, and finally it is confirmed that there are significant interstate differences in the demand for private health insurance.     

Worker flows, job flows and unemployment in a matching model

Standard matching models of unemployment generate far too little volatility in unemployment and vacancies relative to the variation in the shock variables. Shimer (2005) showed that in US data the vacancy-to-unemployment ratio is about 26 times more volatile than the standard model predicts. He identified the flexibility of wages as the key issue and triggered a heated debate on possible improvements of the core model to accommodate these empirical facts. In this paper, we first document Shimer's facts for the UK and find them to be qualitatively similar to US facts. We then develop and calibrate a model based on the Mortensen and Pissarides approach that increases the volatility of the v/u ratio 20-fold compared to the standard framework. The key features of our model relate to the job creation decision by firms and the search options of workers. We allow these to search whilst employed, and firms to re-advertise jobs that have been quit from. This leads us to use a different job creation process, whereby potential vacancies, or job ‘ideas’, arise at a finite rate per period over a range of idiosyncratic productivities. Calibrating the model to UK data, we show that it delivers volatility in unemployment and vacancies much closer to, though still not as large as, that observed for the UK, whilst retaining the standard wage determination process.     

The effect of self-employed health insurance subsidies on self-employment

This paper estimates the effect of an increase in the deductibility of health insurance premiums for self-employed individuals on the probability of being self-employed. Using a panel of tax returns from 1999 to 2004, we estimate fixed effects instrumental variable regressions for the probability of being self-employed, entering into self-employment, and exiting from self-employment. Our results suggest that this policy increased the probability of being self-employed by 1.5 percentage points, and increased the probability that a taxpayer would be primarily or exclusively self-employed by 1.1 and 0.35 percentage points respectively. These effects explain about a third to a half of the total increase in self-employment by these definitions over the sample period. We also find that the probability of entering self-employment increased by 0.8 percentage points and find suggestive evidence that the probability of exit decreased by 2.8 percentage points.     

Unemployment insurance benefits and the supply of labor of an employed worker

The unemployment insurance program is believed to adversely affect the supply of labor of the unemployed. Yet, it generates favorable incentives for the employed. Since unemployment benefits are aimed to compensate the unemployed for earnings loss, of which past earnings serve as a practical measure, a worker might choose to increase his efforts when employed, insuring himself partially against future unemployment. However, this possible impact on labor supply has escaped any attention until very recently. Incorporating an earnings-related benefits scheme into a multi-period decision model, the present paper investigates the labor supply behavior of an insured worker over time.     

Community rating and the market for private non-group health insurance

Prior research on adverse selection in health insurance markets has found only mixed evidence for adverse selection in group settings. We examine the impact of state community rating regulations enacted in the 1990s, which greatly limited insurers' ability to risk rate premiums, to determine if adverse selection is more evident in non-group insurance markets. Using data from large, national surveys we find evidence of a shift to a less healthy pool of non-group enrollees as a consequence of community rating. Community rating made healthy people 20 to 60% less likely to be insured by non-group health insurance; in addition, we found evidence that young and healthy people were 20 to 30% more likely to be uninsured as a result of community rating. We also find evidence that individuals in poor health were 35 to 50% more likely to be insured in the non-group market, but only limited evidence suggesting that persons in poor health were less likely to be uninsured. Our results are further supported by findings suggesting that non-group enrollees were sicker as a result of the community rating laws. Lastly, we find evidence suggesting that HMO penetration in the non-group market increased disproportionately in states that implemented community rating relative to states that did not.     

Partial unemployment insurance benefits and the transition rate to regular work

In Finland, unemployed workers who are looking for a full-time job but take up a part-time or very short full-time job may qualify for partial unemployment benefits. In exchange for partial benefits, these applicants must continue their search of regular full-time work. This study analyzes the implications of working on partial benefits for subsequent transitions to regular employment. The timing-of-events approach is applied to distinguish between causal and selectivity effects associated with the receipt of partial benefits. The results suggest that partial unemployment associated with short full-time jobs facilitates transitions to regular employment. Also part-time working on partial benefits may help men (but not women) in finding a regular job afterwards.     

State mandated benefits and the small firm's decision to offer insurance

In the last decade, the number of Americans without health insurance has grown, partly due to an erosion in employer-based coverage among workers. This paper examines the extent to which state-mandated benefit requirements and other state insurance regulations discourage small firms in the private sector from providing health benefits. Using data on 1320 firms observed in 1985 and 492 firms observed in 1988, we estimate two models of small firms' decisions to offer health insurance (one for each data set), and then use them to assess the effects that mandates had on purchasing decisions in both years. We estimate that 19 percent of noncoverage among sample businesses in 1985 and 43 percent of noncoverage in the 1988 sample was attributable to state-mandated benefits. State continuation-of-coverage requirements were particularly burdensome for firms. With continued growth in the number of state mandated benefit requirements, we should expect a steady rise in the small firm's propensity to forgo insurance coverage.     

The impact of universal child benefits on family health and behaviours

In 2006, the Universal Child Care Benefit was introduced in Canada for all children aged less than 6 years. This program aims to help cover the cost of children and to provide financial assistance to families with young children in their choice of childcare. We exploit this policy change to estimate the effects of unconditional family cash transfers on the health and behaviours of two-parent families and their children. Using a difference-in-differences model, we find no evidence that the program improved child and parental outcomes in aggregate. A modest but fragile beneficial effect is found for low-education families and for girls.     

Taxation of early retirement windows and delaying retirement: The French experience

This paper investigates the effect of the 2003 French pension reform on hiring, firing and employment rates among older workers. This reform increased the mandatory retirement age and simultaneously it set a tax levied on early retirement windows paid by firms to their older workers, to encourage them to leave their job early. We use a matching model with endogenous job destruction extended to account for a mandatory retirement age and we calibrate the model with data drawn from the French Labor Force Surveys for the years 2002 and 2003. We show that in the case of a high tax rate, delaying retirement raises job separation rates, which partially offsets its positive effect on job finding rates. Consequently, the combination of an increase in the retirement age and a taxation on early retirement windows may have negative effects on the employment rate among older workers.     

Public health insurance and optimal income taxation

If individuals differ not only in their inherent capacity to earn income, but also in the probability that they will fall ill, can subsidized public health insurance be justified on the grounds that it serves as an efficient tool to redistribute welfare? This question is analyzed in a model where the social welfare function is a weighted average of individual expected utilities, and where taxation is by a linear income tax. The answer is ‘yes’, except in certain special cases.