Optimal Unemployment Benefits in the Presence of Informal Labor Markets

Martin Gonzalez-Rozada and Hernán Ruffo

Department of Economics Working Papers from Universidad Torcuato Di Tella

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)
Pages: 57 pages
Date: 2016-03
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Citations: View citations in EconPapers (2)

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Journal Article: Optimal unemployment benefits in the presence of informal labor markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2016_03

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