Insurance policies

  • Compensating displaced workers

    Uncoordinated unemployment insurance and severance pay do a poor job of insuring against losses resulting from job displacement

    Donald O. Parsons, September 2018
    Job displacement poses a serious earnings threat to long-tenured workers through unemployment spells and lower re-employment wages. The prevailing method of insuring job displacement losses involves an uncoordinated combination of unemployment insurance and severance pay. Less developed countries often rely exclusively on public mandating of employer severance pay due to the administrative complexity of unemployment insurance systems. If both options are operational, systematic integration of the two is important, although perhaps not possible if severance pay is voluntarily provided.
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  • Disability and labor market outcomes Updated

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

    Melanie Jones, March 2021
    In Europe, about one in eight people of working age report having a disability; that is, 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 labor market disadvantage in many countries. Identifying the reasons for this is complex, but critical to determine effective policy solutions that reduce the extent, and social and economic costs, of disability-related disadvantage.
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  • Does unemployment insurance offer incentives to take jobs in the formal sector?

    Unemployment insurance can protect against income loss and create formal employment

    Mariano Bosch, October 2016
    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.
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  • How labor market institutions affect job creation and productivity growth Updated

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

    Magnus Henrekson, January 2020
    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 in the labor market.
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  • How should job displacement wage losses be insured?

    Wage losses upon re-employment can seriously harm long-tenured displaced workers if they are not properly insured

    Donald O. Parsons, June 2018
    Job displacement represents a serious earnings risk to long-tenured workers through lower re-employment wages, and these losses may persist for many years. Moreover, this risk is often poorly insured, although not for a lack of policy interest. To reduce this risk, most countries mandate scheduled wage insurance (severance pay), and it is voluntarily provided in others. Actual-loss wage insurance is uncommon, although perceived difficulties may be overplayed. Both approaches offer the hope of greater consumption smoothing, with actual-loss plans carrying greater promise.
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  • How to minimize lock-in effects of programs for unemployed workers

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

    Conny Wunsch, September 2016
    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.
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  • Job search requirements for older unemployed workers Updated

    Search requirements for the older unemployed affect their re-employment rates and their flows into states of inactivity

    Hans Bloemen, November 2022
    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 put public finances under strain, and spur calls for policy measures that activate labor force participation by older workers. Introducing job search requirements for older unemployed workers aims to increase their re-employment rates. Abolishing the exemption from job search requirements for the older unemployed has been shown to initiate higher outflow rates from unemployment for them.
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