Insurance policies

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Short-time work compensations and employment

Temporary government schemes can have a positive economic effect

10.15185/izawol.11 11 Cahuc, P

by Pierre Cahuc

Government schemes that compensate workers for the loss of income while they are on short hours (known as short-time work compensation schemes) make it easier for employers to temporarily reduce hours worked so that labor is better matched to output requirements. Because the employers do not lay off these staff, the schemes help to maintain permanent employment levels during recessions. However, they can create inefficiency in the labor market, and might limit labor market access for freelancers and those looking to work part-time.

Unemployment benefits and unemployment

The challenge of unemployment benefits is to protect workers while minimizing undesirable side effects

10.15185/izawol.13 13 Moffitt, R

by Robert Moffitt

All developed economies have unemployment benefit programs to protect workers against major income losses during spells of unemployment. By enabling unemployed workers to meet basic consumption needs, the programs protect workers from having to sell their assets or accept jobs below their qualifications. The programs also help stabilize the economy during recessions. If benefits are too generous, however, the programs can lengthen unemployment and raise the unemployment rate. The policy challenge is to protect workers while minimizing undesirable side effects.

How labor market institutions affect job creation and productivity growth

Key labor market institutions, and the policies that shape them, affect the restructuring that leads to economic growth

10.15185/izawol.38 38 Henrekson, M

by Magnus Henrekson

Economic growth requires factor reallocation across firms and continuous replacement of technologies. Labor market institutions influence economic dynamism by their impact on the supply of a key factor, skilled workers to new and expanding firms, and the shedding of workers from declining and failing firms. Growth-favoring labor market institutions include portable pension plans and other job tenure rights, health insurance untied to the current employer, individualized wage-setting, and public income insurance systems that encourage mobility and risk-taking.

Unemployment benefits and job match quality

Do unemployment benefits help those seeking work to obtain better jobs?

10.15185/izawol.44 44 Tatsiramos, K

by Konstantinos Tatsiramos

Unemployment insurance schemes face a well-known trade-off between providing income support to those out of work and reducing their incentive to look for work. This trade-off between benefits and incentives is central to the public debate about extending benefit periods during the recent economic crisis. Often overlooked in this debate is that such support can increase the quality of the work found by the unemployed. This quality rise, in terms of both wages and duration, can be achieved by increasing the time and resources available to an individual to obtain a better job.

The incentive effects of minimum pensions

Minimum pension programs reduce poverty in old age but they can also reduce the labor supply of low-income workers

10.15185/izawol.84 84 Jiménez-Martín, S

by Sergi Jiménez-Martín

The main purpose of minimum pension benefit programs and old-age social assistance programs is to guarantee a minimum standard of living after retirement and thus to alleviate poverty in old age. In many developing and developed countries, the minimum pension program is a key welfare program and a major influence on the retirement decisions of low-income workers and workers with erratic work histories. The design of many minimum pension programs tends to create strong incentives for low-income workers to retire as soon as they become eligible for the program, which is often earlier than the normal retirement age.

Should unemployment insurance cover partial unemployment?

Time-limited benefits may yield significant welfare gains and help underemployed part-time workers move to full-time employment

10.15185/izawol.199 199 Ek Spector, S

by Susanne Ek Spector

A considerable share of the labor force consists of underemployed part-time workers: employed workers who, for various reasons, are unable to work as much as they would like to. Offering unemployment benefits to part-time unemployed workers is controversial. On the one hand, such benefits can strengthen incentives to take a part-time job rather than remain fully unemployed, thus raising the probability of obtaining at least some employment. On the other hand, these benefits weaken incentives for part-time workers to look for full-time employment. It is also difficult to distinguish people who work part-time by choice from those who do so involuntarily.

Job search requirements for older unemployed workers

How do they affect re-employment rates and flows into states of inactivity for older unemployed workers?

10.15185/izawol.235 235 Bloemen, H

by Hans Bloemen

Many OECD countries have, or have had, a policy that exempts older unemployed people from the requirement to search for a job. An aging population and low participation by older workers in the labor market increasingly place public finances under strain, and spur calls for policy measures that activate labor force participation by older workers. Introducing job search requirements for the older unemployed aims to increase their re-employment rates. Abolishing the exemption from job search requirements for these workers has been shown to initiate higher outflow rates from unemployment for the older unemployed.

Disability and labor market outcomes

Disability is associated with labor market disadvantage; recent evidence points to a causal relationship

10.15185/izawol.253 253 Jones, M

by Melanie Jones

In Europe, about one in eight people of working age report having a disability; that is, the presence of a long-term limiting health condition. Despite the introduction of a range of legislative and policy initiatives designed to eliminate discrimination and facilitate retention of and entry into work, disability is associated with substantial and enduring employment disadvantages. Identifying the reasons for this is complex, but critical to determine effective policy solutions that reduce the social and economic costs of disability disadvantage.

How to minimize lock-in effects of programs for unemployed workers

Appopriate timing and targeting of activation programs for the unemployed can help improve their cost-effectiveness

10.15185/izawol.288 288 Wunsch, C

by Conny Wunsch

Activation programs, such as job search assistance, training, or work experience programs for unemployed workers, typically initially produce negative employment effects. These so-called “lock-in effects” occur because participants spend less time and effort on job search activities than non-participants. Lock-in effects need to be offset by sufficiently large post-participation employment or earnings for the programs to be cost-effective. They represent key indirect costs that are often more important than direct program costs. The right timing and targeting of these programs can improve their cost-effectiveness by reducing lock-in effects.

Does unemployment insurance offer incentives to take jobs in the formal sector?

Unemployment insurance can protect against income loss and create formal employment

10.15185/izawol.300 300 Bosch, M

by Mariano Bosch

Unemployment insurance can be an efficient tool to provide protection for workers against unemployment and foster formal job creation in developing countries. How much workers value this protection and to what extent it allows a more efficient job search are two key parameters that determine its effectiveness. However, evidence shows that important challenges remain in the introduction and expansion of unemployment insurance in developing countries. These challenges range from achieving coverage in countries with high informality, financing the scheme without further distorting the labor market, and ensuring progressive redistribution.

What can be expected from productive inclusion programs?

Grants and training programs are great complements to social assistance to help people out of poverty

10.15185/izawol.301 301 Rigolini, J

by Jamele Rigolini

Productive inclusion programs provide an integrated package of services, such as grants and training, to promote self-employment and wage employment among the poor. They show promising long-term impacts, and are often proposed as a way to graduate the poor out of social assistance. Nevertheless, neither productive inclusion nor social assistance will be able to solve the broader poverty challenge independently. Rather, the future is in integrating productive inclusion into the existing social assistance system, though this poses several design, coordination, and implementation challenges.