Choosing a System of Unemployment Income Support : Guidelines for Developing and Transition Countries

Abstract

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.