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Optimal unemployment benefits in the presence of informal labor markets

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  • Gonzalez-Rozada, Martin
  • Ruffo, Hernán

Abstract

We assess optimal unemployment benefit level and duration in a labor market with many informal jobs. Using administrative data from Argentina, a country with high informality, we exploit discontinuities in duration, and a reform that increases benefits. We find that increasing benefits hardly extends unemployment spells but raises re-employment wages. In contrast, extending unemployment benefits prolongs unemployment spells with no effect on re-employment wages. In a search model, we derive sufficient statistics to analyze the welfare effects of a reform that increases benefits by shortening duration. Calibrating our formula using our empirical results, we find that welfare would increase with higher benefits and shorter duration.

Suggested Citation

  • Gonzalez-Rozada, Martin & Ruffo, Hernán, 2016. "Optimal unemployment benefits in the presence of informal labor markets," Labour Economics, Elsevier, vol. 41(C), pages 204-227.
  • Handle: RePEc:eee:labeco:v:41:y:2016:i:c:p:204-227
    DOI: 10.1016/j.labeco.2016.06.001
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    Cited by:

    1. Vargas Juliana Mesén & Linden Bruno Van der, 2019. "Why Cash Transfer Programs Can Both Stimulate and Slow Down Job Finding," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-27, June.
    2. Mesén Vargas, Juliana & Van der Linden, Bruno, 2017. "Is There Always a Trade-off between Insurance and Incentives? The Case of Unemployment with Subsistence Constraints," IZA Discussion Papers 11034, Institute of Labor Economics (IZA).
    3. Liepmann, Hannah & Pignatti, Clemente, 2021. "Welfare Effects of Unemployment Benefits When Informality Is High," IZA Discussion Papers 14601, Institute of Labor Economics (IZA).
    4. Antonia Asenjo & Verónica Escudero & Hannah Liepmann, 2024. "Why Should we Integrate Income and Employment Support? A Conceptual and Empirical Investigation," Journal of Development Studies, Taylor & Francis Journals, vol. 60(1), pages 1-29, January.
    5. Adriana D. Kugler, 2019. "Impacts of Labor Market Institutions and Demographic Factors on Labor Markets in Latin America," IMF Working Papers 2019/155, International Monetary Fund.
    6. Martin González-Rozada & Hernan Ruffo, 2022. "The welfare effects of unemployment insurance in Argentina. New estimates using changes in the schedule of transfers," Department of Economics Working Papers 2022_01, Universidad Torcuato Di Tella.

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    More about this item

    Keywords

    Unemployment insurance; Severance payments; Regression discontinuity;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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