Income Support for the Unemployed: Issues and Options

Income Support for the Unemployed: Issues and Options

Income Support for the Unemployed: Issues and Options

Income Support for the Unemployed: Issues and Options

Synopsis

With the aim to provide guidelines for countries wishing to introduce or improve income support systems for the unemployed, the book summarizes the evidence about the performance of five such systems:- unemployment insurance,- unemployment assistance,- unemployment insurance savings accounts,- severance pay, and- public works. These systems are evaluated by two sets of criteria: (i) performance criteria, evaluating how well these systems work--how they protect incomes and what other, particularly efficiency related, effects they may have; and (ii) design and implementation criteria, evaluating how these systems fit the country--how suitable these programs are given country-specific conditions, chief among them being labor market and other institutions, the capacity needed for administering income support programs, the size of the informal sector, and prevalence of private transfers. Income Support for the Unemployed also offers summary evaluations of alternative systems by describing the strengths and weaknesses of each system and pointing out the country specific circumstances which are particularly conducive to performance.

Excerpt

In May 2003 I was asked to help the Sri Lankan government introduce an unemployment insurance program. The task was daunting: never had I encountered a country at such a low level of economic development, with so large an informal sector and such weak administrative capacity, embark upon such an effort. Yet as I learned, providing unemployment insurance was the only politically acceptable way for Sri Lankan policymakers to reform another badly performing labor market institution: severance pay.

This is an example of the difficult choices and tradeoffs developing countries face in providing income support against unemployment risk. Industrial countries offer such support primarily by providing social insurance. When is a developing country ready to introduce such a program? How should the blueprints for programs in place in industrial countries be modified to meet the circumstances of developing countries, including the different characteristics of unemployed workers and the abundant employment opportunities in the informal sector? How should the tradeoffs between different types of public income support programs be evaluated? What should the mix be between public and private risk management arrangements? How should the income protection and efficiency effects of different programs be balanced? Can income protection come only at the cost of efficiency?

I tackle these questions by evaluating different unemployment support programs and assessing their applicability in developing and transition countries. I combine and reconcile theoretical insights with empirical evidence, paying due attention to country-specific circumstances. I identify the strengths and weaknesses of each program, as well as point out circumstances that are conducive to the success of each. I hope that the book will provide useful information and advice for policymakers throughout developing and transition countries and that it will arouse interest among academicians and others interested in income support for the unemployed.

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