Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263105 
Year of Publication: 
2021
Series/Report no.: 
ILO Working Paper No. 39
Publisher: 
International Labour Organization (ILO), Geneva
Abstract: 
We analyze for the first time the welfare effects of unemployment benefits (UBs) in a context of high informality, exploiting matched administrative and survey data with individual-level information on UB receipt, formal and informal employment, wages and consumption. Using a difference-in-differences approach, we find that dismissal from a formal job causes a large drop in consumption, which is between three to six times larger than estimates for developed economies. This is generated by a permanent shift of UB recipients towards informal employment, where they earn substantially lower wages. We then exploit a kink in benefits and show that more generous UBs delay program exit through a substitution of formal with informal employment. However, the disincentive effects are small and short-lived. Because of the high insurance value and the low efficiency costs, welfare effects from increasing UBs are positive for a range of values of the coefficient of relative risk aversion.
Subjects: 
labour economics
informal employment
labour policy
unemployment benefits
ISBN: 
978-92-2-035184-0
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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