Unemployment Insurance, Strategic Unemployment, and Firm-Worker Collusion
67 Pages Posted: 30 Apr 2018
Date Written: April 24, 2018
Exploiting a discontinuous effect of an unemployment insurance (UI) reform in Brazil, this paper documents layoff and rehiring patterns consistent with collusion between firms and workers to extract rents from the UI system. Firms and workers time formal unemployment spells to coincide with workers' eligibility for UI benefits. These patterns are mostly driven by industries and municipalities with large informal labor markets. Combined with a lower probability of hiring replacement workers when laying off workers eligible for UI benefits, this suggests that firms continue employing workers informally while they are on benefits. Firms benefit from collusion through lower equilibrium wages.
Keywords: unemployment insurance, informal labor markets, collusion, law and economics
JEL Classification: J21, J22, J46, J65, K31
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