Optimal Social Assistance and Unemployment Insurance in a Life-Cycle Model of Family Labor Supply and Savings

The speaker analyzes empirically the optimal mix and optimal generosity of social insurance and assistance programs. For this purpose, we specify a structural life-cycle model of the labor supply, savings, and social assistance claiming 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. We show that the optimal policy mix is dominated by social assistance, which guarantees a permanent universal minimum household income, with a minor role for temporary earnings-related unemployment insurance. Optimal social assistance is moderately generous. Primarily due to income pooling, the presence of married households in the population reduces the optimal generosity of social assistance.