Working Paper Revision
Designing Unemployment Insurance for Developing Countries
Abstract: The high incidence of informality in the labor markets of middle-income economies challenges the provision of unemployment protection. We show that, despite informational frictions, introducing an unemployment insurance savings account (UISA) system may provide substantial benefits. This system improves welfare by providing insurance to the unemployed and creating incentives to work in the formal sector. The optimal scheme generates a reduction in unemployment (from 4 to 3 percent), an increase in formality (from 68 to 72 percent), and a rise in total output (by 4 percent). Overall, individuals obtain welfare gains equivalent to a 2.4 percent increase in consumption in every period.
Keywords: savings accounts; Incomplete Markets; Moral Hazard; UISA; Mexico; Informality; Unemployment Insurance; Job Search;
JEL Classification: D82; H55; I38; J65;
https://doi.org/10.20955/wp.2018.006
Status: Published in Journal of Development Economics
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2020-09-10
Number: 2018-006
Note: Publisher DOI: https://doi.org/10.1016/j.jdeveco.2020.102565
Related Works
- Working Paper Revision: Designing Unemployment Insurance for Developing Countries