Insuring Altruism: Labor Market Risks and the Social Insurance Design

• In Event: Experimental Approaches to Taxation and Redistribution

Abstract

Social insurance models prominently argue that selfish demand for future
benefits explains support for redistribution among the rich. In this
article, I posit that the structure of social insurance defines the
scope of other-regarding preferences. The welfare state provides
benefits to insure against individual exposure to labor market risks.
Some welfare states provide social safety nets and everyone receives
equal amounts of benefits. In others, benefits are related to previous
earnings and stabilize individual incomes over the life-cycle. These
structural differences define the relative impact of labor market risks
on individual income, and consequently, the stability of one’s living
status over time. I employ simulated unemployment replacement rates to
construct a measure for the governing principle of social insurance and
show that average support for redistribution is higher in
earnings-related systems. Labor market risk has a stronger impact on
redistribution preferences in flat-rate systems. In laboratory
experiments, I manipulate endowment levels, risk exposure, and the
structure of benefits provided in the case of endowment loss. Results
confirm that risky endowments influence transfer shares negatively.
Previous approaches have not taken into account the other-regarding
perspective of social insurance.

Author

• Verena Rebecca Fetscher, University of Oxford