1. 1 Unemployment Compensation and the Risk of Unemployment The Case of Argentina Ana Lucía Iturriza ( ARGENTINA ) JJ/WBGSP Institute of Social Studies, 2005

2. 2 As a JJ/WBGSP student of Economics of Development I was interested in choosing a topic related to: l MDGs l Poverty Reduction l The functioning of labor markets is a crucial determinant for poverty reduction. SIncome generation / distribution The Topic

3. 3 The Context l Size of the labor market (2003) l Poverty and Unemployment (2000-03)

4. 4 Compensation Programs l Unemployment Insurance, in place since 1991. l Unemployment Assistance (“Plan Jefes”), in place since 2002.

5. 5 l I test the standard prediction in labor economics. Does unemployment compensation affect the incidence or the duration of unemployment? l If so => the programs may be creating disincentives to reenter the employment. l Particularly relevant for an assistance program such as Plan Jefes. S I discuss whether to consider Plan Jefes participants into the employment (broad definition of employment) or not (restrictive definition of employment). Research Question

6. 6 l Permanent Household Survey (EPH) S Demographic indicators (age, sex, marital status, position in the household, region of residence) S Labor market variables (condition of activity, time related variables, characteristics of last occupation when relevant) S Benefit related variables (unemployed receiving insurance, assistance or condition of applicant). l Panel merging two rounds: October 2002 and May 2003. S Transition matrix. S 21,000 observations of people in working age. The Data

7. 7 l Econometrics to estimate the impact of Insurance and Assistance on the probability of transiting from UNEMPLOYMENT to EMPLOYMENT S LOGIT MODELS => Incidence - Probability S COX MODELS => Duration - Hazard rate S NON PARAMETRIC MODELS => Empirical pattern of exits from unemployment. l Analysis performed for two different scenarios. S Plan Jefes participants are employed (broad definition of employment) S Plan Jefes participants are unemployed (restrictive definition of employment). Empirical Strategy

8. 8 Example of the Data Used

9. 9 Example of the Results Obtained

10. 10 Interpretation of the Results l Benefit related variables S Unemployment insurance: Negative but not significant. S Unemployment Assistance: Negative and significant. Compared to non-assisted workers, the probability of transitioning to employment is 31 percentage points lower and the hazard rate is more than twice as less among the assisted. S Condition of Applicant: Negative but not significant. l Other regressors that predict the transition S Age, sex, position in the household, region of residence.

11. 11 Conclusions l Unemployment insurance S It was not found to affect the employment behavior of participants. l Assistance program (Plan Jefes) S Under the broad definition of employment Plan Jefes favors reinsertion into the employment. S Under the restrictive definition of employment, strong demotivating effects associated with the use of Plan Jefes are found. l Policy instruments should be reviewed in accordance with the objectives for which they are created, particularly distinguishing between employment creation and other forms of social protection.

12. 12 l Plan Jefes creates obvious moral hazard problems (through its stipulation that the duration of unemployment assistance is unlimited). l Conclusion insufficiently developed. l Lack of clarity regarding the policy implications and recommendations derived from the study. l The effects of the crisis on the labor market should be more carefully considered. l The analysis could be improved with recent contributions on Argentinean economic crisis and recovery, for instance Calvo’s paper. Drawbacks