Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 7-2021: Choice of Social Security System

Birthe Larsen () and Gisela Waisman
Additional contact information
Birthe Larsen: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Gisela Waisman: Sulcis, Stockholm University and Finansdepartementet, Stockholm

Abstract: This paper examines the impact of unemployment insurance and social assistance on wages, unemployment, education and inequality when educational choice and the decision to pay into an unemployment insurance fund is endogenous and when workers are heterogenous in terms of initial wealth. The higher the worker’s wealth, the lower social assistance the worker receives if unemployed. The model can help shed light on the puzzle why only some workers pay into an unemployment insurance fund as well as the relative compressed wage structure in countries with generous social assistance and unemployment insurance. We use this set up to consider whether we should as society increase social assistance or unemployment insurance, if the aim is to reduce inequality.

Keywords: Voluntary unemployment insurance; Unemployment; Search; Education; Welfare; Inequality

JEL-codes: I24; J60

39 pages, February 10, 2021

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