Friday, September 22, 2006

Income security accounts

The Economist has an interesting article on Temporary income accounts here (subscription required). The idea is this. Two complications with the modern day economy is that 1) income is more volatile than it was in the past (although job security does not seem to be). 2) some workers today are not unemployment for short durations but for long durations. Therefore, it makes sense to replace temporary unemployment insurance with "income security." Here is the plan.

"The idea is to give every worker an account, unsnappily called a “temporary earnings replacement account” or TERA. While in work, people could set aside money in these accounts. Those who lose their jobs could take cash out. The level and duration of withdrawals would be set by the government and would be the same as under today's unemployment system.

A worker who exhausted his account before he found a new job could borrow from it. Repayments would automatically be deducted from future earnings. At retirement, any outstanding TERA debt would be forgiven, while anyone who had a positive balance could withdraw it."

Something to consider.

1 comment:

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