Social insurance

  • Aggregate labor productivity

    Labor productivity is generally seen as bringing wealth and prosperity; but how does it vary over the business cycle?

    Michael C. Burda, April 2018
    Aggregate labor productivity is a central indicator of an economy’s economic development and a wellspring of living standards. Somewhat controversially, many macroeconomists see productivity as a primary driver of fluctuations in economic activity along the business cycle. In some countries, the cyclical behavior of labor productivity seems to have changed. In the past 20–30 years, the US has become markedly less procyclical, while the rest of the OECD has not changed or productivity has become even more procyclical. Finding a cogent and coherent explanation of these developments is challenging.
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  • Are social security programs progressive?

    Whether social security programs reduce inequality is not related to the amount they redistribute

    Alvaro Forteza, July 2015
    Social security programs generally seek to provide insurance and to reduce poverty and inequality. Providing insurance requires little redistribution. But reducing inequality and alleviating poverty do require redistribution. To reduce inequality, programs must redistribute income, but redistributing income is not the same as reducing inequality. While some programs redistribute large amounts of income without noticeably reducing inequality, others reduce inequality with less redistribution and fewer labor market distortions. A non-contributory tier, which provides benefits without requiring contributions, is a key component for reducing inequality.
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  • Can cash transfers reduce child labor? Updated

    Cash transfers can reduce child labor if structured well and if they account for the reasons children work

    Furio C. Rosati, February 2022
    Cash transfers are a popular and successful means of tackling household vulnerability and promoting human capital investment. They can also reduce child labor, especially when it is a response to household vulnerability, but their efficacy is very variable. If not properly designed, cash transfers that promote children's education can increase their economic activities in order to pay the additional costs of schooling. The efficacy of cash transfers may also be reduced if the transfers enable investment in productive assets that boost the returns to child labor. The impact of cash transfers must thus be assessed as part of the whole incentive system faced by the household.
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  • Compensating displaced workers Updated

    Job displacement is a serious earnings risk and the displaced are typically poorly insured

    Donald O. Parsons, February 2024
    Job displacement is a serious earnings risk to long-tenured workers, both through spells of unemployment and through reduced wages on subsequent jobs. Less developed countries often rely exclusively on government mandated employer-provided severance pay to protect displaced workers. Higher income countries usually rely on public unemployment insurance and mandated severance pay. Beyond these options, more administratively demanding plans have been proposed, including UI savings accounts and “actual loss” wage insurance, though real-world experience on either model is lacking.
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  • Designing unemployment benefits in developing countries

    For unemployment benefit programs, the key policy issues are the level of benefits and subsidies and the types of taxes used to finance them

    David A. Robalino, July 2014
    In reforming unemployment benefit systems, the policy debate should be on the appropriate level of benefits, the subsidies needed for people who cannot contribute enough, and how to finance the subsidies, rather than on whether unemployment insurance or individual unemployment savings accounts are better. Unemployment insurance finances subsidies through implicit taxes on savings, while individual savings accounts with solidarity funds finance subsidies through payroll taxes. Taxes on certain consumption goods and real estate could be considered as well and could be less distortionary.
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  • Do payroll tax cuts boost formal jobs in developing countries?

    Payroll tax cuts in developing economies might be beneficial to the formal sector, even when the informal sector is large

    Carmen Pagés, March 2017
    Informal employment accounts for more than half of total employment in Latin America and the Caribbean, and an even higher percentage in Africa and South Asia. It is associated with lack of social insurance, low tax collection, and low productivity jobs. Lowering payroll taxes is a potential lever to increase formal employment and extend social insurance coverage among the labor force. However, the effects of tax cuts vary across countries, often resulting in large wage shifts but relatively small employment effects. Cutting payroll taxes requires levying other taxes to compensate for lost revenue, which may be difficult in developing economies.
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  • Does unemployment insurance offer incentives to take jobs in the formal sector?

    Unemployment insurance can protect against income loss and create formal employment

    Mariano Bosch, October 2016
    Unemployment insurance can be an efficient tool to provide protection for workers against unemployment and foster formal job creation in developing countries. How much workers value this protection and to what extent it allows a more efficient job search are two key parameters that determine its effectiveness. However, evidence shows that important challenges remain in the introduction and expansion of unemployment insurance in developing countries. These challenges range from achieving coverage in countries with high informality, financing the scheme without further distorting the labor market, and ensuring progressive redistribution.
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  • How should job displacement wage losses be insured? Updated

    Wage losses upon re-employment can seriously harm long-tenured displaced workers if they are not properly insured

    Donald O. Parsons, July 2023
    Job displacement represents a serious earnings risk to long-tenured workers through lower re-employment wages, and these losses may persist for many years. Moreover, this risk is often poorly insured, although not for a lack of policy interest. To reduce this risk, most countries mandate scheduled wage insurance (severance pay), although it is provided only voluntarily in others, including the US. Actual-loss wage insurance is uncommon, although perceived difficulties may be overplayed. Both approaches offer the hope of greater consumption smoothing, with actual-loss plans carrying greater promise, but more uncertainty, of success.
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