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Title:Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security PDF Logo
Authors:Kaul, Ashok
Hagedorn, Marcus
Barbie, Martin
Issue Date:2002
Series/Report no.:IZA Discussion paper series 678
Abstract:We develop a general equilibrium stochastic OLG model with heterogenous households. Households differ with respect to their productivity. Productivity depends stochastically on parents' unobservable investment in their child's human capital and an aggregate productivity shock. We introduce a PAYG social security system that conditions benefits on the aggregate wage sum and on the wage of one's child. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it to real world systems, which typically do not condition benefits on the wages of one's children. We decompose the effects of social security on the investment in human capital into an incentive effect, an insurance effect, a redistributive effect and a general equilibrium effect. Furthermore, we discuss the effects of social security on the long run distribution of human capital. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as intragenerational insurance against human capital risk.
Subjects:human capital formation
social security
intragenerational insurance
heterogenous households
JEL:H55
D61
J24
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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