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Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security


Barbie, Martin; Hagedorn, Marcus; Kaul, Ashok (2005). Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security. Working paper series / Institute for Empirical Research in Economics No. 236, University of Zurich.

Abstract

We propose an extended PAYG social security system that conditions pension benefits on the aggregate wage sum and on the wage of one’s children. The latter increases parents’ incentives to provide their children with good within-familyneducation. However, since wages depend stochastically on parents’ unobservable investment in their children’s human capital, some insurance against the productivity risk of one’s children is provided because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenousndistribution of human capital and compare it to real world systems which typically do not condition benefits on the wages of one’s children. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as an intra-generational insurance against productivitynrisk.

We propose an extended PAYG social security system that conditions pension benefits on the aggregate wage sum and on the wage of one’s children. The latter increases parents’ incentives to provide their children with good within-familyneducation. However, since wages depend stochastically on parents’ unobservable investment in their children’s human capital, some insurance against the productivity risk of one’s children is provided because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenousndistribution of human capital and compare it to real world systems which typically do not condition benefits on the wages of one’s children. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as an intra-generational insurance against productivitynrisk.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2005
Deposited On:29 Nov 2011 22:32
Last Modified:05 Apr 2016 15:11
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: https://doi.org/10.5167/uzh-52128

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