Unemployment in Mexico: Policy Options, Unemployment Insurance and a Comparison with EPL Rules

Abstract

This document aims to provide a set of recommendations for the adoption of an unemployment insurance program in Mexico. It describes the situation of unemployment in Mexico, of the labor contracts, of the main federal employment programs and of the effectiveness of the employment protection legislation. It summarizes the main economic debates on the unemployment problem, and the way in which programs in the Americas have evolved. Reforms have followed the main theoretical recommendations. We provide estimates of the probabilities of finding and exiting employment based on survey data, which are used to produce time series of unemployment and a database of individual work histories, in turn used to evaluate the programs. We simulate a UI program similar to the Chilean program, and compare it with EPL rules on compensation for separation similar to those existing in Mexican legislation. Finally, specific recommendations on the adoption of an unemployment insurance program are given.

Keywords: Unemployment Insurance, Mexico, Employment Protection Legislation

JEL Classification: J65, O15, O17