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The Newly Unemployed and the UIF Take-up Rate in the South African Labour Market

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Author Info

  • Haroon Bhorat
  • David Tseng

    ()
    (Development Policy Research Unit
    Director and Professor)

Abstract

This paper investigates the take-up rate or claim-waiting rate of the unemployed under the South African Unemployment Insurance Fund (UIF) system. The goal is to identify disincentive effects that income replacement rates (IRR) and accumulated credits may have on the claimants behaviour in terms of their claim waiting period rate (or how quickly they apply for UIF benefits). Utilizing nonparametric and semi-parametric estimation techniques, we find that there is little evidence, if any, for job disincentives or moral hazard problems. More specifically, the majority of claimants that are quickest to claim the UIF benefits are those who have worked continuously for at least four years and accumulated the maximum allowable amount of credits. We also note that claimants‟ claim-waiting periods are indifferent with regard to levels of income replacements yet extremely sensitive to the amount of credits accumulated. Ultimately, the recipients of the UIF benefits do not depend heavily on the replacement incomes and prefer waiting longer for employment opportunities to arise as opposed to exhausting their accumulated credits. The semi-parametric Cox’s Proportional Hazard (PH) model confirms that there is a positive relationship between the claimants accumulation of credits and the associated take-up rate of the UIF. Acknowledgements: The research, from which this paper emanates, was commissioned by the Africa Growth Initiative (AGI), at the Brookings Institution.

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Bibliographic Info

Paper provided by University of Cape Town, Development Policy Research Unit in its series Working Papers with number 12147.

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Length: 25 pages
Date of creation: Jul 2012
Date of revision:
Publication status: Published in Working Paper Series by the Development Policy Research Unit, July 2012, pages 1-25
Handle: RePEc:ctw:wpaper:12147

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Keywords: Cox proportional hazards model; Claim-waiting period; Unemployment Insurance Fund (UIF); Income Replacement Rates (IRR); Semi-parametric models; unemployment benefits; Survival Analysis; claiming incentives; moral hazard.;

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References

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  1. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  2. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
  3. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
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  8. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-66, December.
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  14. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  15. Dale T. Mortensen, 1977. "Unemployment Insurance and Labor Supply Decisions," Discussion Papers 271, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. John M. Barron & Wesley Mellow, 1979. "Search Effort in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 389-404.
  17. 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).
  18. 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, vol. 24(2), pages 351-378, April.
  19. Paul L. Burgess & Jerry L. Kingston, 1976. "The impact of unemployment insurance benefits on reemployment success," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(1), pages 25-31, October.
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