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Unemployment insurance and informality in developing countries

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  • Bardey, David
  • Jaramillo, Fernando

Abstract

We analyze whether the introduction of unemployment insurance (UI hereafter) benefits in developing countries would reduce the effort made by unemployed to secure a new job in the formal sector. We show that one shot UI benefits unambiguously increase the effort to secure a new job in the formal sector. The relative strength of income/substitution effects only determine how leisure and informal activities are affected. Consequently, our (partial equilibrium) analysis reveals that short term UI benefits in developing countries do not reduce incentives to secure a new formal job and therefore cannot be interpreted as a subsidy to the informal sector.

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Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 11-257.

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Date of creation: Sep 2011
Date of revision: Nov 2011
Handle: RePEc:tse:wpaper:25103

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Keywords: Unemployment insurance; informal sector; income effects; developing countries.;

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  1. Álvarez-Parra, Fernando & Sánchez, Juan M., 2009. "Unemployment insurance with a hidden labor market," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 954-967, October.
  2. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  3. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  4. Cahuc, Pierre & Lehmann, Etienne, 1999. "Should unemployment benefits decrease with unemployment spell ?," CEPREMAP Working Papers (Couverture Orange) 9916, CEPREMAP.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Unemployment insurance in developing economies?
    by Economic Logician in Economic Logic on 2011-11-01 14:49:00

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