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Income support systems for the unemployed : issues and options

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  • Vodopivec, Milan
  • Raju, Dhushyanth

Abstract

The report reviews the performance of various income support systems for the unemployed, and provides guidelines for developing and transition economies. It finds that: a) Unemployment insurance enables a high degree of consumption smoothing, performs well under various types of shocks, and acts as an automatic stabilizer. But it also creates reemployment disincentives, and wage pressure which increase the equilibrium unemployment rate, contributing to persistent unemployment. b) Unemployment assistance, while enabling more effective targeting, may not bring savings in comparison to unemployment insurance, and may well prove fiscally unsustainable. c) Unemployment insurance savings accounts, internalize the costs of unemployment benefits, and thus avoid the moral hazard inherent in traditional unemployment insurance, given the weak monitoring capacity of developing countries, an important advantage. d) Public works program is effective in reaching the poor, can attract informal sector workers, and provides flexible, fast responses to shocks. Despite its high non-wage costs, and possible stigmatization of participants, it is found suitable for developing countries, particularly as a complementary program. e) Severance pay offers few advantages - it adversely affects efficiency, produces high litigation costs, and offers limited risk-pooling.

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  • Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers and Notes 25529, The World Bank.
  • Handle: RePEc:wbk:hdnspu:25529
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    3. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
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    6. Alvarez-Parra, Fernando A. & Sanchez, Juan M., 2006. "Unemployment Insurance in an Economy with a Hidden Labor Market," MPRA Paper 2531, University Library of Munich, Germany.
    7. Alexandre KOLEV & Catherine SAGET, 2005. "Understanding youth labour market disadvantage: Evidence from south-east Europe," International Labour Review, International Labour Organization, vol. 144(2), pages 161-187, June.
    8. van Ours, Jan C & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," CEPR Discussion Papers 5741, C.E.P.R. Discussion Papers.
    9. Bruno Rocha, 2010. "At Different Speeds: Policy Complementarities and the Recovery from the Asian Crisis," Working Papers id:3294, eSocialSciences.
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    12. Boeri, Tito & Macis, Mario, 2010. "Do unemployment benefits promote or hinder job reallocation?," Journal of Development Economics, Elsevier, vol. 93(1), pages 109-125, September.
    13. Vodopivec, Milan, 2008. "How Viable Are Unemployment Insurance Savings Accounts: Simulation Results for Slovenia," IZA Discussion Papers 3438, Institute of Labor Economics (IZA).
    14. Gustavo de Souza & Andre Luduvice, 2022. "Optimal Unemployment Insurance Requirements," Working Paper Series WP 2022-45, Federal Reserve Bank of Chicago.
    15. van Ours, Jan C. & Vodopivec, Milan, 2006. "Duration of unemployment benefits and quality of post-unemployment jobs : evidence from a natural experiment," Policy Research Working Paper Series 4031, The World Bank.
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    9. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
    10. Simoes, Nadia, 2013. "Subsídio de desemprego: uma revisão da literatura teórica e empírica [Unemployment insurance: a survey]," MPRA Paper 52332, University Library of Munich, Germany.
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