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Unemployment Insurance in Developing Countries: The Case of Brazil

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  • François Gerard

    (UC Berkeley)

  • Gustavo Gonzaga

    ()
    (Department of Economics PUC-Rio)

Abstract

Few developing countries have adopted an Unemployment Insurance (UI) program but the list of countries considering its implementation is growing. Focusing on the Brazilian UI program and using administrative data covering the universe of formal employment, we provide empirical evidence documenting two relevant facts for the debate around the design of such program in countries characterized by a large informal sector and a lack of administrative and enforcement capacity. First, UI benefits strongly affects the timing of formal job finding for those workers able to find a formal job soon after job-loss. Second, those workers constitute a small share of the overall pool of UI beneficiaries, since most job-losers do not find a formal job rapidly. Therefore, offering UI is costly (most beneficiaries would exhaust their benefits for typical lengths of benefit duration) and UI benefits have little distortionary effect on the job-finding behavior of the average (formal) job-loser: they constitute pure income transfers for 3/4 of the potential beneficiaries. We further discuss implications of these 2 facts and highlight some interactions with job protection legislations (hiring costs), the main policy instrument used to protect workers from labor demand fluctuations in those countries.

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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 593.

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Length: 40p
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:rio:texdis:593

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  1. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 90(10-11), pages 1879-1901, November.
  2. Gonzalo Reyes Hartley & Jan C Van Ours & Milan Vodopivec, 2010. "Incentive Effects of Unemployment Insurance Savings Accounts: Evidence from Chile," Working Papers, Superintendencia de Pensiones 40, Superintendencia de Pensiones, revised Feb 2010.
  3. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
  4. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2011-063, Boston University - Department of Economics.
  5. Olivier J. Blanchard & Jean Tirole, 2008. "The Joint Design of Unemployment Insurance and Employment Protection: A First Pass," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(1), pages 45-77, 03.
  6. 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.
  7. 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.
  8. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 2(2), pages 165-187, June.
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