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Incentive Effects of Unemployment Insurance Savings Accounts: Evidence from Chile

  • Reyes Hartley, Gonzalo

    ()

    (World Bank)

  • van Ours, Jan C.

    ()

    (Tilburg University)

  • Vodopivec, Milan

    ()

    (International School for Social and Business Studies, Celje, Slovenia)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4681.

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Length: 36 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published in: Labour Economics, 2011, 18 (6), 798-809
Handle: RePEc:iza:izadps:dp4681
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  1. 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.
  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. 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. Rafael Lalive & Jan van Ours & Josef Zweimüller, . "How changes in Financial Incentives Affect the Duration of Unemployment," IEW - Working Papers 206, Institute for Empirical Research in Economics - University of Zurich.
  5. repec:ner:tilbur:urn:nbn:nl:ui:12-301941 is not listed on IDEAS
  6. 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.
  7. 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.
  8. Ferrer, Ana & Riddell, W. Craig, 2011. "Unemployment Insurance Savings Accounts in Latin America: Overview and Assessment," IZA Discussion Papers 5577, Institute for the Study of Labor (IZA).
  9. Joseph Stiglitz & Jungyoll Yun, 2002. "Integration of unemployment insurance with retirement insurance," Discussion Papers 0203-04, Columbia University, Department of Economics.
  10. 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.
  11. Martin Feldstein & Daniel Altman, 1998. "Unemployment Insurance Savings Accounts," NBER Working Papers 6860, National Bureau of Economic Research, Inc.
  12. 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.
  13. Arellano, Manuel & Bentolila, Samuel & Bover, Olympia, 1998. "Unemployment Duration, Benefit Duration and the Business Cycle," CEPR Discussion Papers 1840, C.E.P.R. Discussion Papers.
  14. Peter Fredriksson & Bertil Holmlund, 2003. "Optimal Unemployment Insurance Design: Time Limits, Monitoring, or Workfare?," CESifo Working Paper Series 1019, CESifo Group Munich.
  15. 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.
  16. 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.
  17. 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.
  18. 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, School of Economics and Management.
  19. 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).
  20. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications, The World Bank, number 14922.
  21. Folster, Stefan, 1999. "Social Insurance Based on Personal Savings," The Economic Record, The Economic Society of Australia, vol. 75(228), pages 5-18, March.
  22. 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.
  23. 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.
  24. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
  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.
  26. Orszag, Mike & Snower, Dennis J., 2002. "From Unemployment Benefits to Unemployment Accounts," IZA Discussion Papers 532, Institute for the Study of Labor (IZA).
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