Unemployment insurance and informality in developing countries
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 secure a new formal job and therefore cannot be interpreted as a subsidy to the informal sector.
|Date of creation:||Sep 2011|
|Date of revision:||Nov 2011|
|Publication status:||Published in The World Bank Economic Review, vol. 29, 2015, p. 126-134.|
|Contact details of provider:|| Phone: (+33) 5 61 12 86 23|
Web page: http://www.tse-fr.eu/
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- Cahuc, Pierre & Lehmann, Etienne, 1999. "Should unemployment benefits decrease with unemployment spell ?," CEPREMAP Working Papers (Couverture Orange) 9916, CEPREMAP.
- 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.
- Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
- Lars Ljungqvist & Thomas Sargent, 1999. "Matlab code for Hopenhayn-Nicolini's optimal unemployment insurance model," QM&RBC Codes 18, Quantitative Macroeconomics & Real Business Cycles.
- Álvarez-Parra, Fernando & Sánchez, Juan M., 2009. "Unemployment insurance with a hidden labor market," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 954-967, October.
- Fernando Álvarez-Parra & Juan M. Sanchez, 2009. "Unemployment insurance with a hidden labor market," Working Paper 09-09, Federal Reserve Bank of Richmond.
- Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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