Unemployment insurance and informality in developing countries
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 securea new formal job and therefore cannot be interpreted as a subsidy to the informalsector.
|Date of creation:||03 Oct 2011|
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- Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
- Álvarez-Parra, Fernando & Sánchez, Juan M., 2009.
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- Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
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- Lars Ljungqvist & Thomas Sargent, 1999. "Matlab code for Hopenhayn-Nicolini's optimal unemployment insurance model," QM&RBC Codes 18, Quantitative Macroeconomics & Real Business Cycles.
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