Unemployment Insurance and Social Security (Incomplete Draft)

Social insurance programs represent a large proportion of government expenditure in many countries, including the United States and members of the European Union. Two programs that represent the bulk of these expenditures are unemployment insurance (UI) and social security (SS). (Throughout this paper SS will refer to disability and retirement bene...ts paid as annuities.) The main purpose of UI is to help smooth consumption during an unemployment spell. SS guarantees a minimum level of consumption during retirement, and provides insurance against short working lives and long life spans. (For an analysis of positive theories of SS see Mulligan and Sala-i-Martin, 1999.) On one hand, these programs may provide consumption smoothing possibilities than would not be available under imperfect private insurance markets (see for example Gruber,1997, for UI and Eckstein et al,1985, for SS). On the other hand, they are