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Incentive Effects of Unemployment Insurance Savings Accounts: Evidence from Chile

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  • Reyes, Gonzalo
  • van Ours, Jan C.
  • Vodopivec, Milan

Abstract

This study examines the determinants of job-finding rates of unemployment benefit recipients under the Chilean program. This is a unique, innovative program that combines social insurance through a solidarity fund (SF) with self-insurance in the form of unemployment insurance savings accounts (UISAs) - so as to mitigate the moral hazard problem of traditional unemployment insurance programs. Our study is the first one to empirically investigate whether UISAs improve work incentives. We find that for beneficiaries using the SF, the pattern of job finding rates over the duration of unemployment is consistent with moral hazard effects, while for beneficiaries relying on UISAs, the pattern is free of such effects. We also find that for benefit recipient not entitled to use the SF, the amount of accumulation on the UISA does not affect the exit rate from unemployment, suggesting that such individuals internalize the costs of unemployment benefits. Our results provide strong support to the idea that UISAs can improve work incentives.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7632.

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Date of creation: Jan 2010
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Handle: RePEc:cpr:ceprdp:7632

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Keywords: savings account; unemployment duration; unemployment insurance;

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References

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  1. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series, Uppsala University, Department of Economics 1997:25, Uppsala University, Department of Economics.
  2. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications, The World Bank, number 14922, October.
  3. Martin Feldstein & Daniel Altman, 1998. "Unemployment Insurance Savings Accounts," NBER Working Papers 6860, National Bureau of Economic Research, Inc.
  4. Rafael Lalive & Jan C. van Ours & Josef Zweimüller, 2004. "How Changes in Financial Incentives Affect the Duration of Unemployment," CESifo Working Paper Series 1337, CESifo Group Munich.
  5. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
  6. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers 49173, The World Bank.
  7. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 24(2), pages 351-378, April.
  8. Daniel S. Hamermesh & Daniel T. Slesnick, 1995. "Unemployment Insurance and Household Welfare: Microeconomic Evidence 1980-93," NBER Working Papers 5315, National Bureau of Economic Research, Inc.
  9. Bover, O. & Arellano, M. & Bentolila, S., 1997. "Unemployment Duration, Benefit Duration, and the Business Cycle," Papers, Centro de Estudios Monetarios Y Financieros- 9717, Centro de Estudios Monetarios Y Financieros-.
  10. Fredriksson, Peter & Holmlund, Bertil, 2005. "Optimal unemployment insurance design: time limits, monitoring, or workfare?," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2005:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  11. Stiglitz, Joseph E. & Yun, Jungyoll, 2005. "Integration of unemployment insurance with retirement insurance," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2037-2067, December.
  12. Vodopivec, Milan, 2008. "How Viable Are Unemployment Insurance Savings Accounts: Simulation Results for Slovenia," IZA Discussion Papers 3438, Institute for the Study of Labor (IZA).
  13. Matthew Blackwell & Stefano Iacus & Gary King & Giuseppe Porro, 2010. "CEM: Coarsened Exact Matching in Stata," BOS10 Stata Conference, Stata Users Group 8, Stata Users Group.
  14. Abbring, Jaap H. & Berg, Gerard J. van den & Ours, Jan C. van, 1996. "The effect of unemployment insurance sanctions on the transition rate from unemployment to employment," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  15. Bovenberg, A.L. & Hansen, M. & Sorensen, P.B., 2008. "Individual savings accounts for social insurance: Rationale and alternative designs," Open Access publications from Tilburg University urn:nbn:nl:ui:12-301941, Tilburg University.
  16. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series, Uppsala University, Department of Economics 2003:10, Uppsala University, Department of Economics.
  17. David MARGOLIS, 2008. "“Unemployment Insurance Versus Individual Unemployment Accounts and Transitions to Formal Versus Informal Sector Jobs”," Working Papers, Centre de Recherche en Economie et Statistique 2008-35, Centre de Recherche en Economie et Statistique.
  18. Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 487-500, February.
  19. Milan Vodopivec, 2010. "How Viable are Unemployment Insurance Savings Accounts? Simulation Results for Slovenia," Comparative Economic Studies, Palgrave Macmillan, vol. 52(2), pages 225-247, June.
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  21. Orszag, Mike & Snower, Dennis J., 2002. "From Unemployment Benefits to Unemployment Accounts," IZA Discussion Papers 532, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Haroon Bhorat & Sumayya Goga & David Tseng, 2013. "Unemployment Insurance in South Africa: A Descriptive Overview of Claimants and Claims," Working Papers, University of Cape Town, Development Policy Research Unit 13160, University of Cape Town, Development Policy Research Unit.
  2. Robalino, David A. & Vodopivec, Milan & Bodor, András, 2009. "Savings for Unemployment in Good or Bad Times: Options for Developing Countries," IZA Discussion Papers 4516, Institute for the Study of Labor (IZA).
  3. Keuschnigg, Christian & Fisher, Walter, 2011. "Life-Cycle Unemployment, Retirement and Parametric Pension Reform," Economics Working Paper Series 1119, University of St. Gallen, School of Economics and Political Science.
  4. Tatsiramos, Konstantinos & van Ours, Jan C, 2012. "Labor Market Effects of Unemployment Insurance Design," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9196, C.E.P.R. Discussion Papers.
  5. Vodopivec, Milan, 2009. "Introducing Unemployment Insurance to Developing Countries," IZA Policy Papers 6, Institute for the Study of Labor (IZA).
  6. Paula Nagler, 2013. "How unemployment insurance savings accounts affect employment duration: evidence from Chile," IZA Journal of Labor & Development, Springer, Springer, vol. 2(1), pages 1-25, December.
  7. Isabel Poblete, 2011. "Análisis del uso de beneficios en el Seguro de Cesantía Chileno," Working Papers, Superintendencia de Pensiones 51, Superintendencia de Pensiones, revised Oct 2011.
  8. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers 49173, The World Bank.
  9. Nagler, Paula, 2013. "How unemployment insurance savings accounts affect employment duration: Evidence from Chile," MERIT Working Papers 039, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  10. Amil Petrin & Jagadeesh Sivadasan, 2011. "Estimating Lost Output from Allocative Inefficiency, with an Application to Chile and Firing Costs," NBER Working Papers 17373, National Bureau of Economic Research, Inc.
  11. Fernando Alexandre & Luís Aguiar Conraria & Pedro Bação & Miguel Portela, 2011. "A Poupança em Portugal," GEMF Working Papers 2011-19, GEMF - Faculdade de Economia, Universidade de Coimbra.
  12. François Gerard & Gustavo Gonzaga, 2011. "Unemployment Insurance in Developing Countries: The Case of Brazil," Textos para discussão 593, Department of Economics PUC-Rio (Brazil).
  13. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance Pay Programs around the World: History, Rationale, Status, and Reforms," IZA Discussion Papers 5731, Institute for the Study of Labor (IZA).
  14. Cristobal Huneeus & Silvia Leiva & Alejandro Micco, 2012. "Unemployment Insurance and Search Effort in Chile," Research Department Publications 4784, Inter-American Development Bank, Research Department.
  15. Eduardo Fajnzylber R. & Isabel Poblete H., 2013. "Analysis of the use of benefits under Chilean unemployment insurance," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(3), pages 32-68, December.

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