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AbstractThe paper analyzes key labor market and institutional features of developing countries that affect functioning of unemployment insurance: a large informal sector, weak administrative capacity, and large political risk. It argues that these countries should tailor an OECD-style unemployment insurance program to their circumstances, among others by relying on self-insurance (via unemployment insurance savings accounts), complemented by solidarity funding, as a key source of financing; by simplifying monitoring of job-search behavior and labor market status; and by piggybacking on existing networks to administer benefits. The paper also addresses the question whether developing countries should introduce unemployment insurance.JEL codesJ65, J68

Abstract The paper analyzes key labor market and institutional features of developing countries that affect functioning of unemployment insurance: a large informal sector, weak administrative capacity, and large political risk. It argues that these countries should tailor an OECD-style unemployment insurance program to their circumstances, among others by relying on self-insurance (via unemployment insurance savings accounts), complemented by solidarity funding, as a key source of financing; by simplifying monitoring of job-search behavior and labor market status; and by piggybacking on existing networks to administer benefits. The paper also addresses the question whether developing countries should introduce unemployment insurance. JEL codes J65, J68

The paper identifies key labor market and institutional differences between developed and developing countries, analyzes how these differences affect the working of the standard, OECD-style unemployment insurance (UI) program, and derives a desirable design of unemployment benefit program in developing countries. It argues that these countries – faced by large informal sector, weak administrative capacity, large political risk, and environment prone to corruption – should tailor the OECD-style UI program to suit their circumstances. To minimize employment disincentives, to ensure affordability, and to minimize administration cots, such adaptations include: (i) relying on self-insurance (via unemployment insurance savings accounts – UISAs) as a main source of financing and complementing it by solidarity funding; (ii) simplifying monitoring of job-search behavior and labor market status, and even eliminating personal monitoring of continuing eligibility requirements in the early phases; (iii) keeping modest benefits both in terms of the replacement rate and potential benefit duration; (iv) drawing on employers' and workers' contributions as sources of financing; and (v) piggybacking on existing networks to administer benefits. Particularly attractive is the UISAs-cum-borrowing version that uses pension wealth as collateral, making the system proof to moral hazard and strategic behavior, and allowing it to be rapidly deployed, such as in response to the currently emerging global economic crises.

This report reviews Sri Lanka's social protection programs and proposes strategic options for enhancing their role in promoting growth with equity. Well designed social protection (SP) systems can help address poverty and inequality through redistribution, and mitigate risks and facilitate employment opportunities, thus contributing to both growth and equity goals. The report first identifies the poor and vulnerable (chapter 1) and then reviews and evaluates employment protection and promotion policies and programs (chapter 2), social security/insurance schemes (chapter 3), and safety net programs (chapter 4) and proposes policy options The concluding chapter summarizes key analytical findings and presents a unified policy framework to improve social protection. The report relies mainly on extensive existing literature from Sri Lankan and international researchers. The remaining part of this section summarizes the main issues and policy options.

Mounting evidence suggests that excessive job protection reduces employment and labor market flows, hinders technological innovations, pushes workers into the informal sector, and hurts vulnerable groups by depriving them of job opportunities. Flexible labor markets stimulate job creation, investment, and growth, but they create job insecurity and displace some workers. How can the costs of such insecurity and displacements be minimized while ensuring that the labor market remains flexible? Each of the main unemployment income support systems (unemployment insurance, unemployment assistance, unemployment insurance savings accounts, severance pay, and public works) has strengths and weaknesses. Country-specific conditions, chief among them labor market and other institutions, the capacity to administer each type of system, and the size of the informal sector, determine which system is best suited to developing and transition countries.

Intro -- Contents -- Preface -- Acknowledgments -- 1. Introduction -- 2. Conceptual Issues -- Objectives of Income Support Programs for the Unemployed -- Accounting for Interactions among Social Risk Management Mechanisms -- Establishing Evaluation Criteria -- Why Should the Public Sector Provide Unemployment Insurance? -- Who Should Receive Unemployment Income Support? -- Summary -- 3. Review of Income Support Programs for the Unemployed -- Typology and Description of Main Income Support Programs -- The Incidence of Income Support Programs for the Unemployed -- Concluding Remarks -- Annex 3.1 Determinants of Social Insurance Programs for the Unemployed -- 4. Performance of Income Support Programs: Theoretical Aspects and Empirical Evidence -- Income Protection Effects -- Efficiency Effects -- Suitability to Confront Different Shocks -- Resistance to Political Risk -- Concluding Remarks -- Annex 4.1 Efficiency Effects of Income Support Programs -- 5. Design and Implementation Criteria: Exploring Country-Specific Conditions -- Interactions with Labor Market Institutions and Shocks -- Administrative Capacity for Program Implementation -- Characteristics of Unemployment -- Size of the Informal Sector -- Prevalence and Pattern of Interhousehold Transfers -- Nonsocial Insurance and Self-Protection -- The Nature of Shocks -- Cultural and Political Factors -- Concluding Remarks -- 6. Improving Income Support Programs for the Unemployed in Developing Countries -- Choosing the Right Program -- Designing Unemployment Insurance -- Improving Income Protection of the Informal Sector -- Concluding Remarks -- References -- Index.

AbstractLike many transition economies, Slovenia is undergoing profound changes in the workings of the labour market with potentially greater flexibility in terms of both wage and employment adjustment. To investigate the impact of these changes, we use unique longitudinal matched employer‐employee data that permits measurement of employment transitions and wages for workers and enables links of the workers to the firms in which they are employed. We can thus measure worker flows and job flows in a comprehensive and integrated manner. We find a high pace of job flows in Slovenia especially for young, small, private and foreign‐owned firms and for young, less educated workers. While job flows have approached the rates observed in developed market economies, the excess of worker flows above job flows is lower than that observed in market economies. A key factor in the patterns of the worker and job flows is the determination of wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for different skill categories. However, firms are permitted to offer higher wages to an individual based upon the success of the worker and/or the firm. Our analysis shows that firms deviate from the base wage schedule significantly and that the idiosyncratic wage policies of firms are closely related to the observed pattern of worker and job flows at the firm. Firms with more flexible wages (measured as less compression of wages within the firm) have less employment instability and are also able to improve the match quality of their workers.JEL Classifications: J23, J31, J41, J61, P23, P31.