Labor market characteristics and the determinants of political support for social insurance

This dissertation inspects the underlying reasons of demand for social protection policies. It investigates the relationship between labor market risks and preferences for social insurance with a particular emphasis on unemployment insurance. Redistributive and social insurance motives are analyzed jointly. To that end, income, and occupational unemployment risk are considered as the key determinants. The occupational unemployment rate is treated as an estimate of labor market risk, and it is concluded that this explains the political preferences towards social protection policies. A model of optimal choice with heterogeneous workers, which encompasses both redistribution and social insurance incentives, has been presented. It has been showed that the direction of the relationship between the desired levels of transfer payments and each key determinant depends on the transition probabilities. The claimed positive link between specific human capital investment and social insurance holds only with several restrictions on transition probabilities. Moreover, income inequality, measured as deviation from mean income, has a direct impact on preferences for transfer payments. Then, by employing an ordered-probit estimation procedure, empirical tests both examining cross-country and over time developments have been conducted. The results suggest that risk exposure measured as occupational unemployment rate along with income levels is explanatory for preferences for social insurance, and hence the cross-country variations and developments over time in social protection policies cannot be attributed to the differences in types of human capital investment