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Rent-Extraction from the Unemployment Insurance System: The Role of Firms

Author

Listed:
  • Bernardus Van Doornik

    (Banco Central do Brasil)

  • David Schoenherr

    (Princeton University)

  • Janis Skrastins

    (Washington University in St. Louis)

Abstract

Exploiting an unemployment insurance (UI) reform in Brazil, we document formal layoff and recall patterns consistent with rent extraction from the UI system. Firms lay off workers just as they become eligible for UI benefits and recall them just when benefits cease. In addition, firms continue to employ some of the formally laid off workers informally. Salary patterns around the reform are consistent with workers sharing rents with firms through lower equilibrium salaries. We estimate that 2.3 to 11.8 percent of UI payments do not fulfill an insurance purpose, but redistribute income to firms and workers who play the system.

Suggested Citation

  • Bernardus Van Doornik & David Schoenherr & Janis Skrastins, 2020. "Rent-Extraction from the Unemployment Insurance System: The Role of Firms," Working Papers 2020-20, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2020-20
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    More about this item

    Keywords

    unemployment insurance; informality; labor supply; rent-seeking;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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