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Unemployment insurance and informality in developing countries

Bardey, David and Jaramillo, Fernando (2011) Unemployment insurance and informality in developing countries. TSE Working Paper, n. 11-257

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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.

Item Type: Monograph (Working Paper)
Language: English
Date: September 2011
Uncontrolled Keywords: Unemployment insurance, informal sector, income effects, developing countries
JEL Classification: H55 - Social Security and Public Pensions
I38 - Government Policy; Provision and Effects of Welfare Programs
J65 - Unemployment Insurance; Severance Pay; Plant Closings
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 05:45
Last Modified: 02 Oct 2019 23:01
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