The Newly Unemployed and the UIF Take-up Rate in the South African Labour Market

Haroon Bhorat and David Tseng (haroon.bhorat@uct.ac.za)
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David Tseng: Development Policy Research Unit

Working Papers from University of Cape Town, Development Policy Research Unit

Abstract: This paper investigates the take-up rate or claim-waiting rate of the unemployed under the South African Unemployment Insurance Fund (UIF) system. The goal is to identify disincentive effects that income replacement rates (IRR) and accumulated credits may have on the claimants behaviour in terms of their claim waiting period rate (or how quickly they apply for UIF benefits). Utilizing nonparametric and semi-parametric estimation techniques, we find that there is little evidence, if any, for job disincentives or moral hazard problems. More specifically, the majority of claimants that are quickest to claim the UIF benefits are those who have worked continuously for at least four years and accumulated the maximum allowable amount of credits. We also note that claimants‟ claim-waiting periods are indifferent with regard to levels of income replacements yet extremely sensitive to the amount of credits accumulated. Ultimately, the recipients of the UIF benefits do not depend heavily on the replacement incomes and prefer waiting longer for employment opportunities to arise as opposed to exhausting their accumulated credits. The semi-parametric Cox’s Proportional Hazard (PH) model confirms that there is a positive relationship between the claimants accumulation of credits and the associated take-up rate of the UIF. Acknowledgements: The research, from which this paper emanates, was commissioned by the Africa Growth Initiative (AGI), at the Brookings Institution.

Keywords: Cox proportional hazards model; Claim-waiting period; Unemployment Insurance Fund (UIF); Income Replacement Rates (IRR); Semi-parametric models; unemployment benefits; Survival Analysis; claiming incentives; moral hazard. (search for similar items in EconPapers)
JEL-codes: J01 J08 J18 J64 J65 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2012-07
New Economics Papers: this item is included in nep-afr and nep-ias
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Published in Working Paper Series by the Development Policy Research Unit, July 2012, pages 1-25

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http://hdl.handle.net/11427/7293 First version, 2012 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ctw:wpaper:12147

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