DP9028 | Social insurance, work norms, and the allocation of talent

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24/06/2012

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Abstract

Across countries, generous social insurance comes along with weak work norms. This finding is often taken to mean that in the long run social insurance generates large output losses. But neither individual nor country data corroborates the view that weak work norms worsen economic performance. This paper offers a model of endogenous work norms that rationalizes that evidence. Weak work norms do not harm labor productivity because they are associated with an improved allocation of individual talents to occupations, while strong work norms arise as a defensive strategy of parents aiming at perpetueting their occupation along family lines. Evidence from microdata supports the view that (i) social insurance favors intergenerational occupational mobility and (ii) more mobile individuals endorse weaker work norms.