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Unemployment insurance and informality in developing countries

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  • David Bardey

    ()

  • Fernando Jaramillo

    ()

Abstract

ABSTRACT: We analyze whether the introduction of unemployment insurance (UI hereafter)benefits in developing countries would reduce the effort made by unemployed to secure a new job in the formal sector. We show that one shot UI benefits unambiguously increase the effort to secure a new job in the formal sector. The relative strength of income/substitution effects only determine how leisure and informal activities are affected. Consequently, our (partial equilibrium) analysis reveals that short term UI benefits in developing countries do not reduce incentives to securea new formal job and therefore cannot be interpreted as a subsidy to the informalsector.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 009015.

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Length: 8
Date of creation: 03 Oct 2011
Date of revision:
Handle: RePEc:col:000092:009015

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Keywords: Unemployment insurance; informal sector; income effects; develop-ing countries.;

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  1. Fernando Álvarez-Parra & Juan M. Sanchez, 2009. "Unemployment insurance with a hidden labor market," Working Paper 09-09, Federal Reserve Bank of Richmond.
  2. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  3. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  4. Cahuc, Pierre & Lehmann, Etienne, 1999. "Should unemployment benefits decrease with unemployment spell ?," CEPREMAP Working Papers (Couverture Orange) 9916, CEPREMAP.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Unemployment insurance in developing economies?
    by Economic Logician in Economic Logic on 2011-11-01 14:49:00

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