Wealth as Private Insurance

• In Event: 30852 - Wealth

Abstract

Job loss has many detrimental and long-lasting effects on individuals, including a reduction of their post-unemployment wages. The size of the “wage scars” of job loss, however, depends on the extent to which individuals can rely on effective safety nets during unemployment. In particular, if the unemployed have access to financial resources during unemployment, they can prolong their job search until they find a suitable job. The prior literature has focused on the effectiveness of public safety nets, namely unemployment insurance, in reducing wage scarring. In this contribution, we additionally investigate the importance of private safety nets, namely those provided by wealth. Since access to this form of insurance is more unequally distributed, vast differences in family wealth may reinforce the stratifying effects of unemployment experiences on later wage inequalities. We also provide a comparative assessment of the United States and Germany to understand the extent to which private safety nets tied to wealth make up for and interact with public provisions of insurance against the effects of job loss. Additionally, we analyze gender differences, linking our research to the growing literature on unequal access to household wealth. Our preliminary results reveal that wage scars are larger among US workers with little wealth compared to US workers with higher wealth, especially when they face longer unemployment durations. No such patterns can be observed in Germany, indicating that wealth becomes an important safety net when public insurance is weak, as in the United States. As a consequence, post-unemployment outcomes in the US are unequally distributed depending on wealth.

Authors

• Fabian T. Pfeffer, Ludwig-Maximilians-Universität München

• Martin Ehlert, WZB Social Science Research Center Berlin & FU Berlin

• Samuel Jalalian, LMU Munich (Ludwig-Maximilians-Universität München)