Unemployment insurance and transitions in the labor market: An evaluation of the Brazilian program

Abstract

This paper utilizes microsimulation techniques to evaluate the impact of the Brazilian Unemployment Insurance (UI) program on individual transitions among different labor market states in order to verify whether the UI affects the duration of spells and/or their frequencies. We define four labor market states: formal employment, informal employment, unemployment, and inactivity. Our main result is that the UI impact occurs fundamentally on the inactivity of nauheads of family. The UI benefits increase both the duration and frequency of the non-head's inactivity. This happens probably because non-heads have, on average, lower wages and, therefore, a smaller importance in family income and a higher replacement rate. Our evidence does not support the hypothesis that the rise in non-head's inactivity occurs due to head's benefits.