June 23, 2009

An analysis of individual accounts for the unemployment risk in the Netherlands

Individual savings accounts are a recurring reform option for unemployment insurance. Under a system of individual accounts, individuals are forced to save part of their income into an individual account out of which benefits are paid during unemployment.

Individuals are allowed to have a negative balance and still have the same access to income during unemployment. When negative balances at the end of the working life are nullified, some risk pooling remains.

To study the impact of introducing individual accounts for unemployment, we construct a simulation model, which we calibrate for the Netherlands. The simulations results suggest that an optimal combination of the forced savings rate and the replacement rate can slightly increase welfare, when unemployed are credit constrained. When credit constraints are not that important for unemployment, individual accounts are less interesting for unemployment, but then current UI replacement rates seem rather generous. Empirical studies suggest that credit constraints are not that important for unemployment.

This document is a companion paper to CPB Document 169, Individuele spaarrekeningen voor werkloosheid: mirakel of mythe? (only in Dutch) by Egbert Jongen and Annemiek van Vuren. It gives a detailed analysis of the model, the calibration and the simulation results.