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Incentive Effects of Risk Pooling, Redistributive and Savings Arrangements in Unemployment Benefit Systems: Evidence from a Job-Search Model for Brazil

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Author Info

  • Robalino, David A.

    ()
    (World Bank)

  • Zylberstajn, Eduardo

    ()
    (Fundação Getúlio Vargas)

  • Robalino, Juan David

    ()
    (Imperial College London)

Abstract

We develop a model of job search and use it to assess the effects that the Brazilian unemployment benefit system has on exit rates from unemployment. In our setup, unemployed workers receive job offers from the formal and informal sectors and decide whether to accept them or wait. Only jobs in the formal sector come with unemployment benefits. After incorporating the rules of the Brazilian unemployment benefit system we estimate the parameters of the model using its labor force survey (a rotating panel). Key parameters determining model dynamics are: the distribution of wage offers for each individual; the observed probabilities of separation from formal and informal jobs; and the unobserved job offers arrival rates. The results show that, in general, workers eligible for unemployment benefits also have higher offer rates – their unobserved characteristic are correlated with more job opportunities. Policy simulations ten suggest that the risk pooling and savings component of the unemployment benefit system have small effects on the probabilities of remaining unemployed. The main effect of both schemes is to reduce transitions into informal jobs. The effects are larger for unskilled workers, particularly women. The simulations also show that current effects are conditioned on the design of the system. More generous unemployment benefits, for instance, could substantially increase the share of workers who remain unemployed. In addition, asking workers to contribute to finance unemployment benefits would reduce formal employment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5476.

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Length: 32 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5476

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Related research

Keywords: labor market transitions; unemployment insurance; social protection; job-search models; structural estimations;

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References

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  1. Robalino, David A. & Zylberstajn, Helio, 2009. "Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil," Policy Research Working Paper Series 5027, The World Bank.
  2. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum 242, Tilburg University, Faculty of Economics and Business Administration.
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Cited by:
  1. François Gerard & Gustavo Gonzaga, 2013. "Informal Labor and the Cost of Social Programs: Evidence from 15 Years of Unemployment Insurance in Brazil," Textos para discussão 608, Department of Economics PUC-Rio (Brazil).
  2. Robalino, David A. & Rawlings, Laura & Walker, Ian, 2012. "Building social protection and labor systems : concepts and operational implications," Social Protection Discussion Papers 67608, The World Bank.
  3. World Bank, 2012. "Republic of Lebanon--Good Jobs Needed : The Role of Macro, Investment, Education, Labor and Social Protection Policies," World Bank Other Operational Studies 13217, The World Bank.
  4. Charlot, Olivier & Malherbet, Franck & Ulus, Mustafa, 2013. "Unemployment Compensation and the Allocation of Labor in Developing Countries," GIAM Working Papers 13-3, Galatasaray University Economic Research Center.
  5. Margolis, David N. & Navarro, Lucas & Robalino, David A., 2012. "Unemployment Insurance, Job Search and Informal Employment," IZA Discussion Papers 6660, Institute for the Study of Labor (IZA).

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