Rent-Extraction from the Unemployment Insurance System: The Role of Firms
62 Pages Posted: 30 Apr 2018 Last revised: 26 Aug 2020
Date Written: August 25, 2020
Exploiting an unemployment insurance (UI) reform in Brazil, we document formal layoff and recall patterns consistent with rent extraction from the UI system. Firms lay off workers just as they become eligible for UI benefits and recall them just when benefits cease. In addition, firms continue to employ some of the formally laid off workers informally. Salary patterns around the reform are consistent with workers sharing rents with firms through lower equilibrium salaries. We estimate that 2.3 to 11.8 percent of UI payments do not fulfill an insurance purpose, but redistribute income to firms and workers who play the system.
Keywords: unemployment insurance, informal labor markets, collusion, law and economics
JEL Classification: J21, J22, J46, J65, K31
Suggested Citation: Suggested Citation