Risks in the labor market and social insurance preferences: Germany and the USA

Abstract

PurposeThe purpose of this paper is to attempt to look at the link between labor market risks and social insurance demands by taking occupational unemployment rates, and specificity of skills into account.Design/methodology/approachOccupational unemployment rate is treated as an estimate of labor market risk in addition to human capital investment. Then, the variations in Germany and the USA – with diverse labor markets and a considerable difference in terms of social insurance support – are examined.FindingsThe results suggest that occupational unemployment rate is explanatory for the demands for social insurance along with income.Practical implicationsConclusions reached in the paper aim to contribute to the understanding of the political support for social insurance and hence provide tools for the design of such insurance mechanisms.Originality/valueContrary to the widespread association between the type of human capital and social insurance preferences in the literature, the paper argues that the cross‐country variations can be explained by occupational unemployment rates.