Optimal unemployment benefits in the presence of informal labor markets

Martin Gonzalez-Rozada and Hernán Ruffo

Labour Economics, 2016, vol. 41, issue C, 204-227

Abstract: We assess optimal unemployment benefit level and duration in a labor market with many informal jobs. Using administrative data from Argentina, a country with high informality, we exploit discontinuities in duration, and a reform that increases benefits. We find that increasing benefits hardly extends unemployment spells but raises re-employment wages. In contrast, extending unemployment benefits prolongs unemployment spells with no effect on re-employment wages. In a search model, we derive sufficient statistics to analyze the welfare effects of a reform that increases benefits by shortening duration. Calibrating our formula using our empirical results, we find that welfare would increase with higher benefits and shorter duration.

Keywords: Unemployment insurance; Severance payments; Regression discontinuity (search for similar items in EconPapers)
JEL-codes: C41 I38 J64 J65 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:41:y:2016:i:c:p:204-227

DOI: 10.1016/j.labeco.2016.06.001

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