American Economic Journal: Applied Economics
no. 1, January 2023
Exploiting an unemployment insurance reform in Brazil, we study incentive effects of UI in the presence of informal labor markets. We find that eligibility for UI benefits increases formal layoffs by 11 percent. Most of the additional layoffs are related to workers transitioning to informal employment. We further document formal layoff and recall patterns consistent with rent extraction from the UI system. Workers are laid off as they become eligible for UI benefits and recalled when benefits cease. These patterns are stronger for industries and municipalities with a high degree of labor market informality.
Van Doornik, Bernardus, David Schoenherr, and Janis Skrastins.
"Strategic Formal Layoffs: Unemployment Insurance and Informal Labor Markets."
American Economic Journal: Applied Economics,
Time Allocation and Labor Supply
Informal Labor Markets
Labor Turnover; Vacancies; Layoffs
Unemployment Insurance; Severance Pay; Plant Closings
Economic Development: Human Resources; Human Development; Income Distribution; Migration