Strategic Formal Layoffs: Unemployment Insurance and Informal Labor Markets

Bernardus Van Doornik, David Schoenherr, Janis Skrastins

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)292-318
Number of pages27
JournalAmerican Economic Journal: Applied Economics
Volume15
Issue number1
DOIs
StatePublished - 2023

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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