Strategic Formal Layoffs: Unemployment Insurance and Informal Labor Markets

Produced by: 
Available from: 
2022
Paper author(s): 
Bernardus Van Doornik
David Schoenherr
Janis Skrastins
Topic: 
Labor
Year: 
2022

Exploiting an unemployment insurance (UI) reform in Brazil, we study incentive effects of UI in the presence of informal labor markets. We find that eligibility for UI benefits increases formal layoffs by eleven percent. Most of the additional layoffs are related to workers transitioning to informal employment. We further document formal layoff and recall patterns consistent with rent extraction from the UI system. Workers are laid off as they become eligible for UI benefits and recalled when benefits cease. These patterns are stronger for industries and municipalities with a high degree of labor market informality.

ACCESS PAPER

Research section: 
Latest Research
Share this