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Rent-Extraction from the Unemployment Insurance System: The Role of Firms

Bernardus Van Doornik, David Schoenherr and Janis Skrastins
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David Schoenherr: Princeton University
Janis Skrastins: Washington University in St. Louis

Working Papers from Princeton University. Economics Department.

Abstract: Exploiting an unemployment insurance (UI) reform in Brazil, we document formal layoff and recall patterns consistent with rent extraction from the UI system. Firms lay off workers just as they become eligible for UI benefits and recall them just when benefits cease. In addition, firms continue to employ some of the formally laid off workers informally. Salary patterns around the reform are consistent with workers sharing rents with firms through lower equilibrium salaries. We estimate that 2.3 to 11.8 percent of UI payments do not fulfill an insurance purpose, but redistribute income to firms and workers who play the system.

Keywords: unemployment insurance; informality; labor supply; rent-seeking (search for similar items in EconPapers)
JEL-codes: J21 J22 J46 J65 K31 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-ban, nep-ias, nep-iue and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2020-20

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