Title

Strategic Formal Layoffs: Unemployment Insurance and Informal Labor Markets

Author(s)

Bernardus Van Doornik Bernardus Van Doornik (Banco Central do Brasil)

David Schoenherr David Schoenherr (Princeton University)

Janis Skrastins Janis Skrastins (Washington University in St. Louis)

Abstract

Exploiting an unemployment insurance (UI) 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 twelve percent. Most of the additional formal 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 just when benefits cease. Salary patterns around the reform are consistent with firms and workers sharing rents through lower equilibrium salaries.

Creation Date

2020-11

Section URL ID

Paper Number

2020-5

URL

https://drive.google.com/file/d/0B1ijSZ0kc-DxWFM1VGJGZ1lOZEE/view?resourcekey=0-uWnJfQkWbiyv7xbGaR8LZg

File Function

Jel

J21, J22, J46, J65, K31

Keyword(s)

unemployment insurance, informality, labor supply, rent-seeking

Suppress

false

Series

13