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Introducing Unemployment Insurance to Developing Countries

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  • Vodopivec, Milan

    ()
    (World Bank)

Abstract

The paper identifies key labor market and institutional differences between developed and developing countries, analyzes how these differences affect the working of the standard, OECD-style unemployment insurance (UI) program, and derives a desirable design of unemployment benefit program in developing countries. It argues that these countries – faced by large informal sector, weak administrative capacity, large political risk, and environment prone to corruption – should tailor the OECD-style UI program to suit their circumstances. To minimize employment disincentives, to ensure affordability, and to minimize administration cots, such adaptations include: (i) relying on self-insurance (via unemployment insurance savings accounts – UISAs) as a main source of financing and complementing it by solidarity funding; (ii) simplifying monitoring of job-search behavior and labor market status, and even eliminating personal monitoring of continuing eligibility requirements in the early phases; (iii) keeping modest benefits both in terms of the replacement rate and potential benefit duration; (iv) drawing on employers’ and workers’ contributions as sources of financing; and (v) piggybacking on existing networks to administer benefits. Particularly attractive is the UISAs-cum-borrowing version that uses pension wealth as collateral, making the system proof to moral hazard and strategic behavior, and allowing it to be rapidly deployed, such as in response to the currently emerging global economic crises.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Policy Papers with number 6.

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Length: 40 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:iza:izapps:pp6

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Keywords: unemployment; unemployment insurance; unemployment insurance savings accounts;

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Cited by:
  1. 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).
  2. Avato, Johanna & Koettl, Johannes & Sabates-Wheeler, Rachel, 2009. "Definitions, good practices, and global estimates on the status of social protection for international migrants," Social Protection Discussion Papers 49172, The World Bank.
  3. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection Discussion Papers 52186, The World Bank.
  4. 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.
  5. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection Discussion Papers 51251, The World Bank.
  6. Holzmann, Robert, 2010. "Bringing financial literacy and education to low and middle income countries : the need to review, adjust, and extend current wisdom," Social Protection Discussion Papers 56501, The World Bank.
  7. Vodopivec, Milan, 2009. "Introducing Unemployment Insurance to Developing Countries," IZA Policy Papers 6, Institute for the Study of Labor (IZA).
  8. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers 52445, The World Bank.
  9. Charlot, Olivier & Malherbet, Franck & Ulus, Mustafa, 2013. "Unemployment Compensation and the Allocation of Labor in Developing Countries," IZA Discussion Papers 7233, Institute for the Study of Labor (IZA).
  10. Gimpelson, Vladimir & Kapeliushnikov, Rostislav, 2014. "Between Light and Shadow: Informality in the Russian Labour Market," IZA Discussion Papers 8279, Institute for the Study of Labor (IZA).

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