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Income support systems for the unemployed : issues and options

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  • Vodopivec, Milan
  • Raju, Dhushyanth

Abstract

The report reviews the performance of various income support systems for the unemployed, and provides guidelines for developing and transition economies. It finds that: a) Unemployment insurance enables a high degree of consumption smoothing, performs well under various types of shocks, and acts as an automatic stabilizer. But it also creates reemployment disincentives, and wage pressure which increase the equilibrium unemployment rate, contributing to persistent unemployment. b) Unemployment assistance, while enabling more effective targeting, may not bring savings in comparison to unemployment insurance, and may well prove fiscally unsustainable. c) Unemployment insurance savings accounts, internalize the costs of unemployment benefits, and thus avoid the moral hazard inherent in traditional unemployment insurance, given the weak monitoring capacity of developing countries, an important advantage. d) Public works program is effective in reaching the poor, can attract informal sector workers, and provides flexible, fast responses to shocks. Despite its high non-wage costs, and possible stigmatization of participants, it is found suitable for developing countries, particularly as a complementary program. e) Severance pay offers few advantages - it adversely affects efficiency, produces high litigation costs, and offers limited risk-pooling.

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Paper provided by The World Bank in its series Social Protection Discussion Papers with number 25529.

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Date of creation: 31 May 2002
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Handle: RePEc:wbk:hdnspu:25529

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Keywords: Environmental Economics&Policies; Rural Poverty Reduction; Safety Nets and Transfers; Services&Transfers to Poor; Health Economics&Finance;

References

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Cited by:
  1. Boeri, Tito & Macis, Mario, 2008. "Do Unemployment Benefits Promote or Hinder Structural Change?," IZA Discussion Papers 3371, Institute for the Study of Labor (IZA).
  2. Vodopivec, Milan, 2009. "Introducing Unemployment Insurance to Developing Countries," IZA Policy Papers, Institute for the Study of Labor (IZA) 6, Institute for the Study of Labor (IZA).
  3. Boeri, Tito & Macis, Mario, 2010. "Do unemployment benefits promote or hinder job reallocation?," Journal of Development Economics, Elsevier, Elsevier, vol. 93(1), pages 109-125, September.
  4. Alvarez-Parra, Fernando A. & Sanchez, Juan M., 2006. "Unemployment Insurance in an Economy with a Hidden Labor Market," MPRA Paper 2531, University Library of Munich, Germany.
  5. Fernando Álvarez-Parra & Juan M. Sanchez, 2009. "Unemployment insurance with a hidden labor market," Working Paper, Federal Reserve Bank of Richmond 09-09, Federal Reserve Bank of Richmond.
  6. Michael Olsson, 2009. "Matching in the labour market: modelling spatial aspects of the Swedish unemployment benefit rules," The Annals of Regional Science, Springer, Springer, vol. 43(2), pages 345-363, June.
  7. Vodopivec, Milan, 2008. "How Viable Are Unemployment Insurance Savings Accounts: Simulation Results for Slovenia," IZA Discussion Papers 3438, Institute for the Study of Labor (IZA).
  8. van Ours, Jan C. & Vodopivec, Milan, 2006. "Duration of unemployment benefits and quality of post-unemployment jobs : evidence from a natural experiment," Policy Research Working Paper Series, The World Bank 4031, The World Bank.
  9. van Ours, Jan C & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5741, C.E.P.R. Discussion Papers.
  10. Ours, J.C. van & Vodopivec, M., 2006. "Shortening the Potential Duration of Unemployment Benefits does not affect the Quality of Post-Unemployed Jobs: Evidence from a Natural Experiment," Discussion Paper, Tilburg University, Center for Economic Research 2006-56, Tilburg University, Center for Economic Research.
  11. Bruno Rocha, 2010. "At Different Speeds: Policy Complementarities and the Recovery from the Asian Crisis," Working Papers id:3294, eSocialSciences.
  12. World Bank, 2008. "Jordan - Resolving Jordan's Labor Market Paradox of Concurrent Economic Growth and High Unemployment," World Bank Other Operational Studies 18907, The World Bank.
  13. Milan Vodopevic, 2004. "Comparing Unemployment Insurance and Unemployment Assistance," World Bank Other Operational Studies 11811, The World Bank.
  14. World Bank, 2002. "Labor Market in Postwar Bosnia and Herzegovina : How to Encourage Businesses to Create Jobs and Increase Worker Mobility," World Bank Other Operational Studies 15333, The World Bank.

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