The paper: “Preferences for Social Insurance: The Role of Job Security and Risk Propensity”, co-authored with Yasushi Hazama (Institute of Developing Economies, IDE/Japan) , has been accepted for publication in Economics of Governance.
Preferences for Social Insurance: The Role of Job Security and Risk Propensity
Abstract
In a 2003 article, Karl Moene and Michael Wallerstein demonstrated that wealthier citizens tend to support higher spending in social policies directed at the unemployed, while preferring lower spending in policies aimed at the employed. This paper reveals that these findings hinge on two key assumptions: that citizens have a coefficient of relative risk aversion (CRRA) greater than one, and that all citizens face an equal probability of job loss—a presumption that is not necessarily realistic. By incorporating the observation that job security tends to correlate positively with income, we demonstrate that affluent individuals may still advocate for reduced spending in unemployment policies, even when their CRRA exceeds one. Moreover, a significant shift in the distribution of job security—such as during an abrupt economic crisis—might engender greater societal support for these policies, contrary to previous research. Finally, empirical data from recent Brazilian history provide analytical support for the theoretical assertions presented herein.
Keywords: Risk aversion; job security; social insurance; economic inequality; economic shocks; preference ordering reversal.
Please find here the working paper version of this research, and here the technical Appendix.
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