Welfare effects of unemployment benefits when informality is high

Hannah Liepmann and Clemente Pignatti

ILO Working Papers from International Labour Organization

Abstract: We analyze for the first time the welfare effects of unemployment benefits (UBs) in a context of high infor- mality, exploiting matched administrative and survey data with individual-level information on UB receipt, formal and informal employment, wages and consumption. Using a difference-in- differences approach, we find that dismissal from a formal job causes a large drop in consumption, which is between three to six times larger than estimates for developed economies. This is generated by a permanent shift of UB re- cipients towards informal employment, where they earn substantially lower wages. We then exploit a kink in benefits and show that more generous UBs delay program exit through a substitution of formal with informal employment. However, the disincentive effects are small and short-lived. Because of the high insurance value and the low efficiency costs, welfare effects from increasing UBs are positive for a range of values of the coefficient of relative risk aversion.

Keywords: unemployment benefit.; social protection.; informal employment (search for similar items in EconPapers)
Pages: 1 online resource (75 p.) pages
Date: 2021
New Economics Papers: this item is included in nep-ias, nep-isf, nep-iue and nep-lab
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Citations: View citations in EconPapers (2)

Published in ILO working paper series

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Related works:
Journal Article: Welfare effects of unemployment benefits when informality is high (2024)
Working Paper: Welfare Effects of Unemployment Benefits When Informality Is High (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ilo:ilowps:995141693302676

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