The welfare effects of unemployment insurance in Argentina

Abstract

Unemployment insurance transfers should balance the provision of consumption to the unemployed with the disincentive effects on search. Developing countries face the additional challenge of workers hiding employment and income in informal jobs. By exploiting the kinks in the schedule of transfers in Argentina, we find that higher benefits moderately affect job-finding rates and significantly increase re-employment wages. Using a model with random wage offers, we derive a sufficient statistics formula and calibrate it with our estimates to show that welfare could rise substantially if benefits were increased in Argentina. Importantly, our conclusion is relevant for the median eligible worker.