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Unemployment Insurance, Job Search, and Informal Employment

  • David Margolis


    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Lucas Navarro

    (ILADES - Universidad Alberto Hurtado)

  • David A. Robalino

    (Social Protection and Labor Sector, Human Development Department - The World Bank)

This paper analyses the potential impacts of introducing unemployment insurance (UI) in middle income countries using the case of Malaysia, which today does not have such a system. The analysis is based on a job search model with unemployment and three employment sectors: formal and informal wage employment, and self employment. The parameters of the model are estimated to replicate the structure of the labor market in Malaysia in 2009 and the distribution of earnings for informal, formal and self employed workers. The results suggest that unemployment insurance would have only a modest negative effect on unemployment if benefits are not overly generous. The main effect would be a reallocation of labor from wage into self employment while increasing average wages in the formal and informal sectors.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00714372.

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Date of creation: Jul 2014
Date of revision:
Publication status: Published in Markus Froelich, David Kaplan, Carmen Pages, Jamele Rigolini, David Robalino. Social Insurance, Informality, and Labor Markets How to Protect Workers While Creating Good Jobs, Oxford University Press, à paraître, 2014, 978-0-19-968523-3
Handle: RePEc:hal:cesptp:hal-00714372
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  1. Tatsiramos, Konstantinos, 2004. "Geographic Labour Mobility and Unemployment Insurance in Europe," IZA Discussion Papers 1253, Institute for the Study of Labor (IZA).
  2. Holzmann, Robert & Pouget, Yann & Vodopivec, Milan & Weber, Michael, 2011. "Severance pay programs around the world : history, rationale, status, and reforms," Social Protection Discussion Papers 62726, The World Bank.
  3. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. James Albrecht & Lucas Navarro & Susan Vroman, 2006. "The Effects of Labor Market Policies in an Economy with an Informal Sector," Working Papers gueconwpa~06-06-06, Georgetown University, Department of Economics.
  5. van Ours, Jan C. & Vodopivec, Milan, 2008. "Does reducing unemployment insurance generosity reduce job match quality?," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 684-695, April.
  6. Robalino, David A. & Zylberstajn, Eduardo & Robalino, Juan David, 2011. "Incentive Effects of Risk Pooling, Redistributive and Savings Arrangements in Unemployment Benefit Systems: Evidence from a Job-Search Model for Brazil," IZA Discussion Papers 5476, Institute for the Study of Labor (IZA).
  7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  8. Milan Vodopivec & Andreas W�rg�tter & Dhushyanth Raju, 2005. "Unemployment Benefit Systems in Central and Eastern Europe: A Review of the 1990s1," Comparative Economic Studies, Palgrave Macmillan, vol. 47(4), pages 615-651, December.
  9. Mariano Bosch & Julen Esteban-Pretel, 2009. "Cyclical Informality and Unemployment," CIRJE F-Series CIRJE-F-613, CIRJE, Faculty of Economics, University of Tokyo.
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