Personal Unemployment Insurance Accounts (PISAs) were pioneered by Chile in 2002. The accounts are financed through a payroll‐tax contribution from both the employer and employee and are individually owned by workers. During spells of unemployment, idled workers can make withdrawals to compensate for the loss to their incomes, but when employed they continue to build their balances. At retirement, workers can use the balances in these accounts to bolster their retirement income or transfer the funds to their heirs. The program includes a solidarity fund — a public safety net — financed by employers and the government. Unemployed workers can receive payment from the solidarity fund when their own savings are insufficient to cover their period of employment.
The theoretical advantage of this is that because you as a worker own your insurance account, you retain an incentive to find work as soon as you can.
I can always self-insure against a spell of unemployment. It’s called saving. Relative to that, a PISA does two things. First, it forces me to save for this purpose. Second, when my savings run out, the general fund kicks in. So I have something like catastrophic unemployment insurance.
In much the same way that HDHPs and HSAs have given (or forced) a bit of ownership on the consumer, with the intended goal of a more educated consumer who makes better choices.
So I get the advantages of this, and mostly approve. However, I have a critique from a usability perspective. I currently have, an HSA, a Dependent Savings account, for childcare, 529 accounts, not to mention a 401k, IRAs and others. How many of these accounts does a slightly below average person need to manage? I have a graduate degree, not a problem for me, but this is not a sustainable system and won’t work for the people who most need social insurance. Not saying you can’t possibly make it work, but this usability problem need to be front and center. These accounts have to be managed together, in one place, not dependent on your employer. With very easy to understand basic mode, that can be grokked by at least 75% of the population.
Generally an easier to use and understand social insurance system provides more security on average than a more generous but opaque one, which provides more security on the margin.
Yes, all these different accounts should be consolidated into one generalized IRA or 401(k) account. Easily accomplished by modifying rules of current IRAs: increase contribution limits, expand the list of reasons that one can make withdrawals (health care, education, unemployment, retirement, etc.), and add any mandatory contribution requirement(s). Might as well add family leave to the list of acceptable withdrawals too. Consolidating everything into one account also provides an additional insurance benefit: if one encounters more health care expenses and less unemployment, for example, then one can spend more of one’s funds on health care instead of running into the problem where the extra money would have been locked up in the unemployment account. Finally, if there are shortfalls, then we could have an option to take early Social Security benefits paid into the account in exchange for reduced future Social Security benefits at retirement. After people get back on their feet, then they could be allowed to make excess contributions into the account to beef up their retirement savings.
Although I’m not an expert, it seems unemployment fails two criteria of an insurable risk, 4 & 6. https://en.wikipedia.org/wiki/Insurable_risk
Unemployment is not a large enough loss in most cases.
Unemployment isn’t a calculable loss. It depends on future events, namely how long the unemployment period is.
Secondarily unemployment tends to happen in waves, which is real bad for any insurer’s liquidity, and it is easy to argue the losses aren’t accidental. Attempting to insure an uinsurable risk turns into piecemeal communism 100% of the time.
Might be worth insuring one step downstream. Insure your mortgage or something. Make sure losing your job doesn’t chain into losing your house.
Otherwise you’re into the distinctly inegalitarian notion that some citizens need to be forced to save because they will not choose to on their own. This is surprisingly extreme. Being irresponsible like this is akin to being a child. They probably shouldn’t be allowed to walk the streets unsupervised either.
It silly to say something that exists is impossible.
The insured loss is easily calculable because there is a cap on duration of payments. (If government wants to intervene and use it as a welfare payment vehicle, well, that is not a problem for an actuary.) The “waves” usually are within certain communities and not others, and sure some years are much worse than others. It’s not that different than insuring against hurricanes, earthquakes, or floods.
When I was a regulator I was amazed at how bad the loss ratios were on certain kinds of disability insurance. Whenever the criteria was one where the insured had a decent enough change of gaming payout, even when it meant claiming something like disability and not working anymore with a loss of some income, people would do it all the time. In fact 50 something professionals looking to retire early, especially doctors, became disabled often enough to produce loss ratios of several hundred percent.
The problem with any kind of unemployment scheme is that it’s hard to separate “unemployed not by choice” and “unemployed by choice.” With a whole lot of room in between (is someone that once made $X a hour, but is perhaps unlikely ever to do so again, unemployed by choice if they won’t take a lower wage job or are they just trying to get fair value for their labor?)
One of my best friend actually works on unemployment cases as his career. It’s a difficult problem.
But of course if you don’t include enough safeguards people will abuse it:
https://www.youtube.com/watch?v=x8CUGjmCrS4
My response: 0% respect. Apparently you can be convinced something is insurance as long as enough agree to call it insurance, and are willing to simply deny that industry standards exist.
Then Americans wonder why there are issues with agreeing on the meanings of the names for certain biological realities.
Self reliance always seems to be at the core of many issues. I have been fortunate that when laid off I had enough savings to view taking unemployment from the State as wrong, letting the needy get the benefit. Clearly taking unemployment payments at the margin would not have meant anything meaningful in loss to the government, but still viewed it, maybe as right thing to do.
There is a differe
nce between ethics at the societal level and morality at the individual level.
Saw no numbers in evaluating the trade off for employees , specifically as it relates to loss of current income which most are focused on vs. the long term. And that is important given the hit working people incur do to tax of income for SS purposes to fund the Boomers retirement.
So, given a typical worker, what would their income be under this scheme vs. where things are today?
“The theoretical advantage of this is that because you as a worker own your insurance account, you retain an incentive to find work as soon as you can.”
Always the problem with those lazy proles. Never wanting to work. Unlike rentiers…
I agree with Matt H in that we don’t need yet another government savings plan.
In a more perfect world, I’d rather go the other direction and have a government created savings account, and replace all of the welfare-type transfer payments and their bureaucracies. It would have $93,600. Every seven days, people can withdraw exactly $600, no questions asked, allowing for 3 years worth of continual weekly withdrawals.
If you need it to make rent this month, you can use it for rent. If you need to buy groceries, you can use it for food. If you had an unexpected repair bill on your car and put $2,400 on the credit card, you can withdraw $600/wk for the next 4 weeks to take care of that high interest debt. If you’re unemployed, you can withdraw once per month to augment your savings or spouse’s income (if you have them), or withdraw each week until you find another job. I’d be open to a kids version which would be the same thing but $100k/wk, with $15,600 in the account.
This would replace unemployment insurance, SNAP, section 8 housing, the child tax credit, EITC, etc. I’d even have this replace social security disability insurance.
It would be like a basic income, in that there is no bureaucracy, but because it is limited, most people won’t use it most of the time, and so it would be much, much cheaper.
Aside from this, I’d have what Robin Hanson has called ‘basic dorms’. Places you can live in, without means testing or rent, that are spartan but provide for all basic needs. You have a small, clean room, access to communal toilets/showers, a cafeteria that provides three square meals a day, free internet access, a small monthly budget for clothing from thrift stores. There would be employees, security to ensure safety, janitors, and social workers who try to help people leave who want to leave, etc. It would serve as a safety net for those who ran out of their savings through either bad luck or wastefulness.
The reason I say ‘perfect world’ is that in reality, I suspect that the government savings accounts would be added to existing programs and there would be political pressure to keep increasing the available dollars.
Another advantage of PISAs: benefits accumulate as one pays more into the system. Suppose one works as a regular employee for many years, paying into the system (or having one’s employer pay on one’s behalf). Then, one becomes self-employed for a bit, starting one’s own business or working as a consultant/contractor. Self-employment tax does not include unemployment contributions. So, under the current pay-as-you-go system, if one’s business fails, then one won’t be eligible to collect unemployment benefits no matter how many years one paid into the system as a regular employee in earlier years. Eligibility is based on one’s last employment, not lifetime employment. With PISAs, one gets credit for all of one’s lifetime contributions.