Question

Consider an economy with identical individuals who live for two periods. Half of the workers are in the 1^st, the other half in the second period of life. Their utility function is ut= log(ct) in each period. They work in the first period and receive an income 100 and are retired in the second period and receive no income. They can save as much of their income as they like in bank accounts, earning an interest rate of r per period. They do not leave bequests.

Write down their lifetime budget constraint.

What is the individual's optimal consumption in each period? How much savings does he or she do in the first period?

_________________________

Now, the government sets up a social security system. Each worker has to pay 50 pounds as long as he is working. The money is put it in the bank and transferred back to them with interest when they are retired. What is the name for this type of social security system?

How does the system affect the amount of private savings? How does the system affect national savings (total savings in society)?

What is the effect on social welfare, if we assume that the government interest rate is the same as the private interest rate?

What is the effect on social welfare, if we assume that due to economies of scale the government interest rate is higher than the private interest rate?

Answer 1

Economic insecurity has been a hallmark of working households lives within the twenty-first century. Recollections of the satisfactory Recession when unemployment reached its best possible degree in generations are nonetheless contemporary within the American cognizance. Staff who're laid off experience longer durations of unemployment than in prior monetary eras, and even once they in finding work, they battle to get back to their prior wage. Americans from all walks of existence believe they may be able to no longer rely on regular forty-hour-per-week jobs. Employees in low-wage provider industries can have their schedule converted on a weekly and even everyday groundwork. There's rising countrywide recognition of the independent staff of freelancers and the contingent personnel of on-call and on-demand employees, together with an increasing number working within the so-known as gig financial system. even as these staff may just obtain flexibility, it comes at the cost of fiscal stability.

So additionally to unemployment, many staff are struggling by means of unstable profits and wages. Fiscal nervousness has outlived the fine Recession, exceptionally amongst young workers and workers with lower than a school degree who've struggled to keep steady dwelling wage employment. The economic climate used to be the highest concern amongst voters in 2016, regardless of the longest financial recuperation in the put up World battle II period. Clearly something is fundamentally flawed with the profits and economic experiences of working americans requiring new pondering and policy responses that out survive recessionary periods.

Key coverage responses to this undertaking have incorporated stimulating the economic climate to bolster full-time employment and enacting greater labor law to motivate fair scheduling and higher necessities total.1 moreover, there was an curiosity in making use of a social coverage process not simply to unemployment however to wages and their instability. President Obama has proposed the progress of a wage insurance software, but it is constrained to these individuals who had been at a function for more than three years earlier than they have been laid off. A recent examination of ways to use the wage insurance notion to volatility amongst freelancers and the gig economic system concluded that wage insurance is probably not suitable as a protracted-time period support method for 1099 staff.

This report seeks to increase the dialog concerning the variety of earnings coverage that might be provided to households via the unemployment insurance process, the nations first responder to economic misery.

Findings and strategies

a brand new evaluation of Census knowledge offered in this record finds that earnings volatility is preferred within the submit first-rate Recession economic system:

for the period of the interval of 2008-2013, three out of five top earners (the top earners within the loved ones) experienced at some point a 50 percentage drop in their month-to-month earnings.
For the usual worker, the ordinary change between pairs of months chosen from a five-yr interval is $2,300 $2,600.
Workers in contingent work arrangements, (freelance, self-employed, temporary, on-name, or otherwise nontraditional group of workers including however now not constrained to gig economy employment like Uber)expertise practically twice as so much gains volatility as general employees.
The present unemployment insurance process supplies a car to fulfill the desires of these with unstable employment. This document delves into distinct reforms that could be piloted individually as stand-by myself reforms, or as part of a complete overhaul of the UI application such as one laid out by means of the center for American growth, Georgetown middle on Poverty and Inequality and the country wide Employment law project.3 This file builds on prior study by way of country wide Employment regulation venture and the core on regulation and Social coverage that looked at a style of unemployment insurance (UI) insurance policies that might deal with staff with erratic schedules.Four The three reforms this document analyzes are under. The suggestions echo ideas for improved unemployment insurance for involuntary section-time staff just lately instructed by means of the fiscal policy Institute.

Partial Unemployment benefits

the primary policy examined is partial unemployment advantages. All states furnish partial unemployment benefits to underemployed workers who have had a reduction in hours or can simplest find section-time work after being laid off from a full time job. These advantages can either make up for misplaced earnings precipitated by discount rates in hours, or in the case of employees who've been laid off, inspire them to stay within the labor market even though they are able to in finding full-time work. These advantages are calculated as a percent of the full unemployment insurance benefit for which these workers would be eligible. The file finds that the accessibility and generosity of these provisions differ widely via state. The penetration of partial UI claims levels from a low of two.4 percentage of all UI claims in Louisiana to a highest of 23.1 percent in Montana. For a worker whose hours are cut from full-time to section-time, ten states would change half of of their misplaced earnings while fourteen states would provide no advantages in any respect. To improve the effectiveness of partial unemployment benefits, the report recommends that:

States can act to make partial unemployment advantages a significant response to profits instability without any alternate to federal regulation.
States should provide partial advantages to any worker incomes lower than 150 percentage of the weekly benefit quantity they might qualify for in the event that they had been laid off (this ordinary or higher has been adopted by using Connecticut, Delaware, Idaho, Michigan, Montana, and Vermont).6 These states pay more than twice as many partial UI claims as the 30 states that most effective provide advantages to workers who earn lower than 100 percentage of their weekly benefit amount.
States will have to make administrative enhancements, together with permitting periodic submission of pay documentation rather of weekly reviews, that might generally facilitate use of partial advantages.  
The federal executive would inspire states to undertake this typical through delivering federal funding to states throughout a recession but best to those states that meet the minimum federal typical outlined above.
This document recommends two extra UI pilot programs to verify further methods to address profits instability a schedule insurance pilot, and a contract worker pilot.
Schedule insurance Pilot application

the present work-sharing application supplies a unique type of partial unemployment advantages that are designed to preclude layoffs. A usual work-sharing plan would reduce the hours of five workers by using in the future per week instead of laying off one work. These newly section-time employees are compensated for part of the profits loss with a partial unemployment cost professional-rated via the numbers of days per week lost.

Our schedule insurance thought would prolong the present work-sharing program, designed to hinder layoffs, right into a program that will support employers keep experienced workers by using offering a prorated unemployment advantage when hours are temporarily reduced.
Our agenda coverage thought would extend the current work-sharing software, designed to avert layoffs, right into a program that may aid employers keep skilled workers by way of delivering a prorated unemployment advantage when hours are temporarily reduced. Below this notion, if a covered employee scheduled for thirty-5 hours of work has a seven-hour shift cancelled, the man or woman would obtain a schedule coverage improvement equal to twenty percentage of what s/he would obtain for a full week of UI advantages. Agenda coverage advantages would handiest be to be had to these employers who normally provide workers with as a minimum thirty-two hours of work per week. Firms that signal a time table insurance contract might qualify their blanketed employees for up to eight weeks of schedule coverage advantages every six months. Like different UI advantages, agenda insurance advantages would be financed via the expertise rating method with safeguards to insure the effective recoupment of charges from each participating enterprise.

Freelance employee Pilot program

Freelance staff who earn their earnings as independent contractors and not staff are not eligible for UI for freelancers benefits. This leaves participants with essentially the most unstable gains with out a social coverage cushion. Even as in general, there had been colossal structural boundaries to insuring freelance employees together with the belief that freelancers can decide on when they work and as a consequence the UI application could not check if they're truly involuntarily unemployed the developing concentration on the impartial personnel requires a test of the viability of systems to overlaying freelancers with UI benefits.