Working Paper: CEPR ID: DP18483
Authors: Abdoulaye Ndiaye; Kyle Herkenhoff; Abdoulaye Cisse; Alessandro Dellacqua; Aly Mbaye
Abstract: This paper studies the welfare effects from the provision of unemployment insurance (UI) benefits in a context where formal workers represent only a small proportion of the labor market and informal workers can submit fraudulent claims for UI benefits. We model these features and allow for varying degrees of enforcement and different funding sources. We then estimate the model's key parameters by conducting a custom labor force survey in Senegal. Our findings show that the liquidity gains are large and the moral hazard response to the UI benefits among workers is relatively small: an extra dollar of UI benefits yields a consumption-equivalent gain of 60--90 cents, which exceeds comparable estimates from U.S. calibrations by a factor of three to sixteen. We then show that the welfare gains depend on the program design: UI funded through payroll taxes delivers the greatest welfare gains but becomes infeasible when there are few formal workers and high rates of fraudulent claims. On the other hand, UI funded through consumption taxes delivers lower welfare gains but remains feasible with high informality and false claims.
Keywords: No keywords provided
JEL Codes: J65; J46; I38; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| UI benefits (J65) | workers' welfare (J28) |
| high false UI claims (J65) | welfare gains (D69) |
| labor tax funding (J39) | welfare gains (D69) |
| consumption tax/VAT funding (H25) | welfare gains (D69) |
| broad-based taxation (H29) | higher revenue (H27) |
| safety net expansions (H53) | reduced loan default rates (G21) |
| reduced loan default rates (G21) | greater credit access (G51) |