Description: Comparing Unemployment Insurance and Unemployment Assistance

Comparing Unemployment Insurance and Unemployment Assistance

Markets alone cannot provide adequate protection against the risk of unemployment. Private unemployment insurance (UI) fails because of informational problems: the so-called moral hazard (changes in behavior in the presence of insurance that are im...

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Bibliographic Details
Main Author:	Vodopevic, Milan
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADMINISTRATIVE COSTS ADMINISTRATIVE PROCEDURES ADVERSE SELECTION AVERAGE COSTS BARGAINING BARGAINING POWER CONSUMPTION SMOOTHING DEPENDENTS DEVELOPED COUNTRIES ECONOMIC EFFICIENCY ELIGIBILITY EMPIRICAL EVIDENCE EMPLOYMENT ENTITLEMENT ENTITLEMENTS EQUILIBRIUM EQUILIBRIUM UNEMPLOYMENT EXPENDITURES INCENTIVE PROBLEMS INCOME INCOME DISTRIBUTION INCOME EFFECT INCOME SUPPORT INSURANCE LABOR FORCE LABOR MARKET LABOR MARKETS LABOR SUPPLY LEISURE MARGINAL TAX RATES MEANS TESTING MORAL HAZARD OPPORTUNITY COST PAYROLL TAXES POOR POVERTY REDUCTION PRIVATE TRANSFERS PUBLIC SPENDING RELATIVE VALUE SAVINGS SEVERANCE SEVERANCE PAY SOCIAL ASSISTANCE SOCIAL ASSISTANCE PROGRAMS SOCIAL PROTECTION SOCIAL SECURITY TARGETING TAX REVENUES TRADE UNIONS TRANSITION ECONOMIES UNEMPLOYED WORKERS UNEMPLOYMENT UNEMPLOYMENT BENEFIT SYSTEMS UNEMPLOYMENT BENEFITS UNEMPLOYMENT COMPENSATION UNEMPLOYMENT INSURANCE UNEMPLOYMENT RATE WAGE RATES WAGES WEALTH WELFARE EFFECTS
Online Access:	http://documents.worldbank.org/curated/en/2004/02/5172882/comparing-unemployment-insurance-unemployment-assistance http://hdl.handle.net/10986/11811

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Summary:	Markets alone cannot provide adequate protection against the risk of unemployment. Private unemployment insurance (UI) fails because of informational problems: the so-called moral hazard (changes in behavior in the presence of insurance that are impossible or very costly to detect) and adverse selection problems (high-risk workers make insurance unattractive to average- and low-risk workers). Hence the mandate for social policy. But social policy has to deal with the same problems that render markets inefficient. Mandatory participation mitigates the problem of adverse selection, but the moral hazard problems remain. In addition, the existence of a social protection program may give rise to inefficiencies of its own. Particularly with the rise of unemployment in European Union in the last two decades, inefficiencies created by UI, the traditional and most widely used public program of income support for the unemployed in developed economies, have become more widely discussed, and solutions and alternatives sought.

Comparing Unemployment Insurance and Unemployment Assistance

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