Social insurance

  • 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.
    MoreLess
  • 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.
    MoreLess
  • Aggregate labor productivity

    Labor productivity is generally seen as bringing wealth and prosperity; but how does it vary over the business cycle?

    Michael C. Burda, April 2018
    Aggregate labor productivity is a central indicator of an economy’s economic development and a wellspring of living standards. Somewhat controversially, many macroeconomists see productivity as a primary driver of fluctuations in economic activity along the business cycle. In some countries, the cyclical behavior of labor productivity seems to have changed. In the past 20–30 years, the US has become markedly less procyclical, while the rest of the OECD has not changed or productivity has become even more procyclical. Finding a cogent and coherent explanation of these developments is challenging.
    MoreLess
  • Do payroll tax cuts boost formal jobs in developing countries?

    Payroll tax cuts in developing economies might be beneficial to the formal sector, even when the informal sector is large

    Carmen Pagés, March 2017
    Informal employment accounts for more than half of total employment in Latin America and the Caribbean, and an even higher percentage in Africa and South Asia. It is associated with lack of social insurance, low tax collection, and low productivity jobs. Lowering payroll taxes is a potential lever to increase formal employment and extend social insurance coverage among the labor force. However, the effects of tax cuts vary across countries, often resulting in large wage shifts but relatively small employment effects. Cutting payroll taxes requires levying other taxes to compensate for lost revenue, which may be difficult in developing economies.
    MoreLess
  • 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.
    MoreLess
  • What can be expected from productive inclusion programs?

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

    Jamele Rigolini, October 2016
    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.
    MoreLess
  • Can cash transfers reduce child labor?

    Cash transfers can reduce child labor if structured well and if they account for the reasons children work

    Furio C. Rosati, September 2016
    Cash transfers are a popular and successful means of tackling household vulnerability and promoting human capital investment. They can also reduce child labor, especially when it is a response to household vulnerability. But if not properly designed, cash transfers that promote children’s education can increase their economic activities in order to pay the additional costs of schooling. The efficacy of cash transfers may also be reduced if the transfers enable investment in productive assets that boost the returns to child labor. The impact of cash transfers must thus be assessed as part of the entire social protection system.
    MoreLess
  • New firms entry, labor reallocation, and institutions in transition economies

    In transition economies, better property rights protection and rule of law enforcement can boost job creation and growth

    Randolph L. Bruno, September 2015
    In the transition from central planning to a market economy in the 1990s, governments focused on privatizing or closing state enterprises, reforming labor markets, compensating laid-off workers, and fostering job creation through new private firms. After privatization, the focus shifted to creating a level playing field in the product market by protecting property rights, enforcing the rule of law, and implementing transparent start-up regulations. A fair, competitive environment with transparent rules supports long-term economic growth and employment creation through the reallocation of jobs in favor of new private firms.
    MoreLess
  • Pensions, informality, and the emerging middle class

    Getting the incentives right for firms and workers should be the priority in the labor formalization agenda

    Angel Melguizo, July 2015
    A large share of the population in emerging market economies has no pension coverage, exposing them to the economic risks arising from socio-economic and individual shocks. This problem, which arises from having large informal (unregulated) sectors, affects not only poor workers, but as many as half the newly or nearly middle class in some emerging market economies. With very little social protection coverage today, these workers will also be vulnerable in the future unless tax, labor, and social policies change to encourage formalization. While formalization would require substantial resources in the short-term, it seems financially sustainable.
    MoreLess
  • Are social security programs progressive?

    Whether social security programs reduce inequality is not related to the amount they redistribute

    Alvaro Forteza, July 2015
    Social security programs generally seek to provide insurance and to reduce poverty and inequality. Providing insurance requires little redistribution. But reducing inequality and alleviating poverty do require redistribution. To reduce inequality, programs must redistribute income, but redistributing income is not the same as reducing inequality. While some programs redistribute large amounts of income without noticeably reducing inequality, others reduce inequality with less redistribution and fewer labor market distortions. A non-contributory tier, which provides benefits without requiring contributions, is a key component for reducing inequality.
    MoreLess
show more