Unemployment insurance and informality in developing countries

David Bardey and Fernando Jaramillo ()

No 11-257, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: 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.

Keywords: Unemployment insurance; informal sector; income effects; developing countries (search for similar items in EconPapers)
JEL-codes: H55 I38 J65 (search for similar items in EconPapers)
Date: 2011-09, Revised 2011-11
New Economics Papers: this item is included in nep-dev, nep-ias, nep-iue and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Unemployment insurance and informality in developing countries (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:25103

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