Designing Unemployment Insurance for Developing Countries

Fernando Cirelli, Emilio Espino () and Juan Sanchez

No 2018-006, Working Papers from Federal Reserve Bank of St. Louis

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 (search for similar items in EconPapers)
JEL-codes: D82 H55 I38 J65 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-04-16, Revised 2020-09-10
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
Note: Publisher DOI: https://doi.org/10.1016/j.jdeveco.2020.102565
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Published in Journal of Development Economics

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Journal Article: Designing unemployment insurance for developing countries (2021)
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DOI: 10.20955/wp.2018.006

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