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Incentive Effects of Unemployment Insurance Savings Accounts: Evidence from Chile

  • Reyes, Gonzalo
  • van Ours, Jan C
  • Vodopivec, Milan

This study examines the determinants of job-finding rates of unemployment benefit recipients under the Chilean program. This is a unique, innovative program that combines social insurance through a solidarity fund (SF) with self-insurance in the form of unemployment insurance savings accounts (UISAs) - so as to mitigate the moral hazard problem of traditional unemployment insurance programs. Our study is the first one to empirically investigate whether UISAs improve work incentives. We find that for beneficiaries using the SF, the pattern of job finding rates over the duration of unemployment is consistent with moral hazard effects, while for beneficiaries relying on UISAs, the pattern is free of such effects. We also find that for benefit recipient not entitled to use the SF, the amount of accumulation on the UISA does not affect the exit rate from unemployment, suggesting that such individuals internalize the costs of unemployment benefits. Our results provide strong support to the idea that UISAs can improve work incentives.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7632.

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Date of creation: Jan 2010
Date of revision:
Handle: RePEc:cpr:ceprdp:7632
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  1. Lalive, R. & van Ours, J.C. & Zweimüller, J., 2004. "How Changes in Financial Incentives Affect the Duration of Unemployment," Discussion Paper 2004-86, Tilburg University, Center for Economic Research.
  2. A. Bovenberg & Martin Hansen & Peter Sørensen, 2008. "Individual savings accounts for social insurance: rationale and alternative designs," International Tax and Public Finance, Springer, vol. 15(1), pages 67-86, February.
  3. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications, The World Bank, number 14922.
  4. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
  5. Matthew Blackwell & Stefano Iacus & Gary King & Giuseppe Porro, 2009. "cem: Coarsened exact matching in Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 524-546, December.
  6. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-41, March.
  7. Solange Berstein & Eduardo Fajnzylber & Pamela Gana & Isabel Poblete, 2007. "Cinco Años de Funcionamiento del Seguro de Cesantía en Chile," Working Papers 23, Superintendencia de Pensiones, revised Dec 2007.
  8. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics.
  9. Fredriksson, Peter & Holmlund, Bertil, 2005. "Optimal unemployment insurance design: time limits, monitoring, or workfare?," Working Paper Series 2005:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  10. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers 49173, The World Bank.
  11. Stiglitz, Joseph E. & Yun, Jungyoll, 2005. "Integration of unemployment insurance with retirement insurance," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2037-2067, December.
  12. Orszag, Mike & Snower, Dennis J., 2002. "From Unemployment Benefits to Unemployment Accounts," IZA Discussion Papers 532, Institute for the Study of Labor (IZA).
  13. Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002. "Unemployment Duration, Benefit Duration and the Business Cycle," Economic Journal, Royal Economic Society, vol. 112(479), pages 223-265, April.
  14. David MARGOLIS, 2008. "“Unemployment Insurance Versus Individual Unemployment Accounts and Transitions to Formal Versus Informal Sector Jobs”," Working Papers 2008-35, Centre de Recherche en Economie et Statistique.
  15. Bovenberg, A.L. & Hansen, M. & Sorensen, P.B., 2008. "Individual savings accounts for social insurance : Rationale and alternative designs," Other publications TiSEM 72e236b0-ad63-4bea-a314-6, Tilburg University, School of Economics and Management.
  16. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
  17. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07.
  18. Daniel S. Hamermesh & Daniel T. Slesnick, 1995. "Unemployment Insurance and Household Welfare: Microeconomic Evidence 1980-93," NBER Working Papers 5315, National Bureau of Economic Research, Inc.
  19. Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 487-500, February.
  20. Milan Vodopivec, 2010. "How Viable are Unemployment Insurance Savings Accounts? Simulation Results for Slovenia," Comparative Economic Studies, Palgrave Macmillan, vol. 52(2), pages 225-247, June.
  21. 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).
  22. Folster, Stefan, 1999. "Social Insurance Based on Personal Savings," The Economic Record, The Economic Society of Australia, vol. 75(228), pages 5-18, March.
  23. Martin Feldstein & Daniel Altman, 2007. "Unemployment Insurance Savings Accounts," NBER Chapters, in: Tax Policy and the Economy, Volume 21, pages 35-64 National Bureau of Economic Research, Inc.
  24. 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, vol. 24(2), pages 351-378, April.
  25. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
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