Unemployment insurance transfers should balance the provision of consumption to the unemployed wi... more Unemployment insurance transfers should balance the provision of consumption to the unemployed with the disincentive effects on the search behavior. Developing countries face the additional challenge of informality. Workers can choose to hide their employment state and labor income in informal jobs, an additional form of moral hazard. To provide evidence about the effects of this policy in a country affected by informality we exploit kinks in the schedule of transfers in Argentina. Our results suggest that higher benefits induce moderate behavioral responses in job-finding rates and increase re-employment wages. We use a sufficient statistics formula from a model with random wage offers and we calibrate it with our estimates. We show that welfare could rise substantially if benefits were increased in Argentina. Importantly, our conclusion is relevant for the median eligible worker that is strongly affected by informality.
How does unemployment risk affects workers welfare and how should policies face this fact? This i... more How does unemployment risk affects workers welfare and how should policies face this fact? This is the broad question that glues the chapters of this thesis. An accurate answer would considerably improve the ability to insure workers against the uncertainty of job loss. This work shows different aspects of the importance of unemployment risk, by studying it from a theoretical point of view, with quantitative models and through empirical lenses. A crucial element that this thesis emphasizes is the central role of human capital accumulation and other life cycle considerations. In Chapter 1 the policies to insure unemployment risk are analyzed. The literature has focused on the optimal way to insure a worker that is searching for a job. The novelty of this chapter is to introduce life cycle considerations, that is to say, to explicitly model the fact that workers can experience job losses at different moments of their life, and at varying conditions. The initial conditions at layoff make workers to react differently to the unemployment insurance policy. For that reason, the optimal policy should take this into account by making unemployment insurance a function of (exogenous) indicators of these initial conditions. In this chapter the role of age is emphasized. The main conclusion is that unemployment insurance should be higher for young workers. In fact, liquidity provision is more important for them because they have not been able to accumulate financial assets. Additionally, distortions are less important for young workers, given that they are worried about their career prospects and they want jobs not only for the labor income but for the human capital accumulation that they entail. The chapter is a contribution in several ways. It highlights the importance of including life cycle considerations in the analysis of unemployment insurance. It shows how the main trade offs of the redistribution of unemployment insurance through the life cycle can be analyzed by a simple formula that can be evaluated using a minimal amount of data. It also solves the optimal life cycle unemployment insurance problem, as a benchmark. In Chapter 2 the assessment of frictional wage dispersion is revisited. The main conclusion is that differences in transition probabilities between workers is wide even after controlling for observables, and that this type of unobservable heterogeneity have profound consequences on the distribution of (residual) wages. In fact, the assessment through a quantitative model has an important result: most of the measured residual wage dispersion in the data can be generated by frictions in the labor market. That is to say, by luck in the search process. This result is at odds with part of the literature that has emphasized that calibrated search models typically generate a wage dispersion that is 20 times lower than the empirical one. While other papers have identified departures to the model (such as on the job search with counteroffers) that generate significant wage dispersion, our approach is to show how heterogeneity in unemployment risk can produce the same result. The main substantial contribution of this chapter is to disentangle the relative role of luck in the determination of wages. The message is that much of the labor income dispersion in the economy is generated by random results of the search process. This is important from a policy perspective, given that part of this luck can be (or should be) insured. Chapter 3 focuses on the empirical approximation of unemployment insurance policy. It is an attempt to implement different methodologies for estimating the optimality of unemployment insurance, using a unique dataset. With Social Security data from the universe of unemployed insurance beneficiaries from Argentina, we identify and estimate important parameters (the lasticity of unemployment duration with respect to benefits and severance pay, and the elasticity of reemployment wages with respect to benefits) which are useful for evaluating the optimality of the unemployment insurance system. The main conclusion is that a shorter benefit provision would generate welfare improvement. The main intuition behind this result is that, in the presence of widespread informality, moral hazard is exacerbated and shorter benefits would make disincentives to look for an informal job milder. This work generates several veins for future research. Concisely, the main avenues are (i) to analyze jointly unemployment insurance and any type of severance pay in the context of human capital loss at displacement and (ii) to extend empirical analysis to include endogenous separation. Two types of shocks arise when a displacement occurs: a temporary income loss related to the uncertainty in the duration of the unemployment spell, and a persistent income loss mainly due to human capital destruction. To insure workers against job loss implies covering both risks with two different instruments: unemployment…
We evaluate the welfare gains of extending the duration and increasing the replacement ratio of t... more We evaluate the welfare gains of extending the duration and increasing the replacement ratio of the current unemployment insurance system in US. To this end, we build a general equilibrium overlapping generations model with on the job human capital accumulation. The model is able, among other things, to match the inequality of outstanding insurance in the economy (through the endogenous wealth distribution). The key features of the model are (i) agents are borrowing constraint, (ii) nding a job requires to exert (unobservable) eort, (iii) nite life span, and (iv) human capital accumulates only while the agent is employed. We nd that, respect to the class of models usually used to study this problem, the last two nobel features substantially increase the welfare gains of more unemployment insurance. The optimal policy prescribes increasing the replacement ratio up to 90% and the duration to 9 months.
We argue that US welfare would rise if unemployment insurance were increased for younger and decr... more We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)
In 1994, Argentina introduced Pension Reform and Unemployment Benefits as a major reform componen... more In 1994, Argentina introduced Pension Reform and Unemployment Benefits as a major reform component to its social security system. This papers analyzes the effects of introducing new individual accounts in the pension system -which was under effect between 1994 and 2008over wages, employment and poverty. While the macroeconomic effects of a change in the pension system is an issue that is relatively well addressed by the literature, its microeconomic effects are often neglected in the analysis. We use a CGE model to evaluate the effects of the reform on labor market and poverty. Our results indicate that if private pension funds are allocated to physical investment, labor demand and wages increase and poverty goes down. However, these effects fade out if funds of private accounts are used to buy government debt. ∗malzua@cedlas.org, CEDLAS, Universidad Nacional de La Plata, Calle 6, e/47-48. La Plata (1900) Argentina †hruffo@ieral.org, IERAL, Viamonte 610, 2nd floor, Buenos Aires, Arg...
Wage rigidity generates higher unemployment volatility in matching mod- els. By comparing the wag... more Wage rigidity generates higher unemployment volatility in matching mod- els. By comparing the wage dynamics and workers’ mobility during the period 2004-11 in Spain and Latvia we provide empirical evidence to this effect. We find that wages in Spain were rigid even during periods of ris- ing and high unemployment. In contrast, Latvian wages were reduced by about 10 percent and wage cuts affected 60 percent of jobs. At the same time, the elasticity of finding and separation rates to productivity shocks was four times higher in Spain than in Latvia, and that these responses were more persistent in Spain. We use finding and separation conditions from a matching model to show that these empirical results are in line with what a model would predict. We also emphasize that separations are very responsive to shocks, more so in a rigid-wage economy, a fact that has not been highlighted in theoretical literature.
We assess the allocative importance of education when workers can choose to self-employ. To do so... more We assess the allocative importance of education when workers can choose to self-employ. To do so, we build a model combining educational choices with the labor market and selfemployment. Education can increase workers' human capital and may signal their ability as well. Both roles can be more important for working in a firm than for self-employment. We show that when education performs worse its signaling role, firms cannot distinguish high and low productivity workers, and there is a higher proportion of workers that allocate in less productive activities as self-employed. This option further reduces incentives to educate, given that education is less valuable for a worker if self-employed. Lowering the cost of education increases the number of educated workers, but does not solve the signaling problem, and could generate stronger misallocation.
In this paper, we explore the role of trade in the evolution of labor share in Latin American cou... more In this paper, we explore the role of trade in the evolution of labor share in Latin American countries. We use trade agreements with large economies (the United States, the European Union, and China) to capture the effect of sharp changes in trade. In the last two decades, labor share has displayed a negative trend among those countries that signed trade agreements, while in other countries labor share increased, widening the gap by 7 percentage points. We apply synthetic control methods to estimate the average causal impact of trade agreements on labor share. While effects are heterogeneous in our eight case studies, the average impact is negative between 2 to 4 percentage points of GDP four years after the entry into force of the trade agreements. This result is robust to the specification used and to the set of countries in the donor pool. We also find that, after trade agreements, exports of manufactured goods and the share of industry in GDP increase on average, most notably i...
The formation of cognitive and noncognitive skills in adulthood has been scarcely studied in the ... more The formation of cognitive and noncognitive skills in adulthood has been scarcely studied in the economic and psychological literature. The lack of studies addressing this production process is explained in part by past results pointing to the stabilization of skills at the last years of adolescence. However, recent evidence supports the malleability of skills during adulthood. Following the latter strand of the literature, we identify events associated with the destruction of skills during this age. Furthermore, we evaluate the effects of the skills dynamics on labor market outcomes such as wages and employability. We extend the model of formation of skills (Cunha and others , 2010) and estimate it in its reduced form using the 1970 British Cohort Study. Results show that three or more months of unemployment are related to a decrease of 0.15 SD of skills level.
In 1994, Argentina introduced a major reform to its social security system: mainly Pension Reform... more In 1994, Argentina introduced a major reform to its social security system: mainly Pension Reform and Unemployment Benefits. Such reform was part of a vast program aiming at modernizing its economy, including establishing a currency board to reduce inflation, a huge privatization program, trade liberalization and deregulation. The results in terms of stabilization and growth were impressive. Capital inflows and investment also grew very fast. However, employment stagnated, poverty augmented and income distribution worsened. While it can be argued that the deterioration of these social indicators was to some extent the result of the economy being hit by external shocks (Tequila crisis, etc.), the transformation of the social security system also had a significant effect over the evolution of social indicators. We will analyze the effects of the introduction of a new individual accounts in Pension System -which is under ∗malzua@ieral.org, IERAL, Viamonte 610, 2nd floor, Buenos Aires, ...
Este trabajo evalúa el impacto de una política orientada a promover la creación y desarrollo de e... more Este trabajo evalúa el impacto de una política orientada a promover la creación y desarrollo de emprendimientos innovadores en la ciudad de Buenos Aires. El programa recibe unos 100 proyectos por año, de los cuales selecciona a alrededor de la mitad. Asiste a los beneficiarios por medio de capital y asesoramiento técnico a través de instituciones patrocinantes. Mediante una encuesta especialmente diseñada para la evaluación de impacto se encuentran fuertes diferencias entre los emprendimientos que son aprobados y los que no: los beneficiarios tienen una mayor tasa de realización del proyecto, supervivencia, además de mayor empleo, ventas e ingresos. Sin embargo, los beneficiarios son seleccionados por sus características. Para aislar este efecto se utilizan los métodos de discontinuidad: dado que el programa asigna un puntaje a cada proyecto, se compara a los emprendimientos de un lado y del otro del umbral especificado para la selección. A partir de estos métodos se encuentra un im...
Unemployment insurance transfers should balance the provision of consumption to the unemployed wi... more Unemployment insurance transfers should balance the provision of consumption to the unemployed with the disincentive effects on the search behavior. Developing countries face the additional challenge of informality. Workers can choose to hide their employment state and labor income in informal jobs, an additional form of moral hazard. To provide evidence about the effects of this policy in a country affected by informality we exploit kinks in the schedule of transfers in Argentina. Our results suggest that higher benefits induce moderate behavioral responses in job-finding rates and increase re-employment wages. We use a sufficient statistics formula from a model with random wage offers and we calibrate it with our estimates. We show that welfare could rise substantially if benefits were increased in Argentina. Importantly, our conclusion is relevant for the median eligible worker that is strongly affected by informality.
How does unemployment risk affects workers welfare and how should policies face this fact? This i... more How does unemployment risk affects workers welfare and how should policies face this fact? This is the broad question that glues the chapters of this thesis. An accurate answer would considerably improve the ability to insure workers against the uncertainty of job loss. This work shows different aspects of the importance of unemployment risk, by studying it from a theoretical point of view, with quantitative models and through empirical lenses. A crucial element that this thesis emphasizes is the central role of human capital accumulation and other life cycle considerations. In Chapter 1 the policies to insure unemployment risk are analyzed. The literature has focused on the optimal way to insure a worker that is searching for a job. The novelty of this chapter is to introduce life cycle considerations, that is to say, to explicitly model the fact that workers can experience job losses at different moments of their life, and at varying conditions. The initial conditions at layoff make workers to react differently to the unemployment insurance policy. For that reason, the optimal policy should take this into account by making unemployment insurance a function of (exogenous) indicators of these initial conditions. In this chapter the role of age is emphasized. The main conclusion is that unemployment insurance should be higher for young workers. In fact, liquidity provision is more important for them because they have not been able to accumulate financial assets. Additionally, distortions are less important for young workers, given that they are worried about their career prospects and they want jobs not only for the labor income but for the human capital accumulation that they entail. The chapter is a contribution in several ways. It highlights the importance of including life cycle considerations in the analysis of unemployment insurance. It shows how the main trade offs of the redistribution of unemployment insurance through the life cycle can be analyzed by a simple formula that can be evaluated using a minimal amount of data. It also solves the optimal life cycle unemployment insurance problem, as a benchmark. In Chapter 2 the assessment of frictional wage dispersion is revisited. The main conclusion is that differences in transition probabilities between workers is wide even after controlling for observables, and that this type of unobservable heterogeneity have profound consequences on the distribution of (residual) wages. In fact, the assessment through a quantitative model has an important result: most of the measured residual wage dispersion in the data can be generated by frictions in the labor market. That is to say, by luck in the search process. This result is at odds with part of the literature that has emphasized that calibrated search models typically generate a wage dispersion that is 20 times lower than the empirical one. While other papers have identified departures to the model (such as on the job search with counteroffers) that generate significant wage dispersion, our approach is to show how heterogeneity in unemployment risk can produce the same result. The main substantial contribution of this chapter is to disentangle the relative role of luck in the determination of wages. The message is that much of the labor income dispersion in the economy is generated by random results of the search process. This is important from a policy perspective, given that part of this luck can be (or should be) insured. Chapter 3 focuses on the empirical approximation of unemployment insurance policy. It is an attempt to implement different methodologies for estimating the optimality of unemployment insurance, using a unique dataset. With Social Security data from the universe of unemployed insurance beneficiaries from Argentina, we identify and estimate important parameters (the lasticity of unemployment duration with respect to benefits and severance pay, and the elasticity of reemployment wages with respect to benefits) which are useful for evaluating the optimality of the unemployment insurance system. The main conclusion is that a shorter benefit provision would generate welfare improvement. The main intuition behind this result is that, in the presence of widespread informality, moral hazard is exacerbated and shorter benefits would make disincentives to look for an informal job milder. This work generates several veins for future research. Concisely, the main avenues are (i) to analyze jointly unemployment insurance and any type of severance pay in the context of human capital loss at displacement and (ii) to extend empirical analysis to include endogenous separation. Two types of shocks arise when a displacement occurs: a temporary income loss related to the uncertainty in the duration of the unemployment spell, and a persistent income loss mainly due to human capital destruction. To insure workers against job loss implies covering both risks with two different instruments: unemployment…
We evaluate the welfare gains of extending the duration and increasing the replacement ratio of t... more We evaluate the welfare gains of extending the duration and increasing the replacement ratio of the current unemployment insurance system in US. To this end, we build a general equilibrium overlapping generations model with on the job human capital accumulation. The model is able, among other things, to match the inequality of outstanding insurance in the economy (through the endogenous wealth distribution). The key features of the model are (i) agents are borrowing constraint, (ii) nding a job requires to exert (unobservable) eort, (iii) nite life span, and (iv) human capital accumulates only while the agent is employed. We nd that, respect to the class of models usually used to study this problem, the last two nobel features substantially increase the welfare gains of more unemployment insurance. The optimal policy prescribes increasing the replacement ratio up to 90% and the duration to 9 months.
We argue that US welfare would rise if unemployment insurance were increased for younger and decr... more We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)
In 1994, Argentina introduced Pension Reform and Unemployment Benefits as a major reform componen... more In 1994, Argentina introduced Pension Reform and Unemployment Benefits as a major reform component to its social security system. This papers analyzes the effects of introducing new individual accounts in the pension system -which was under effect between 1994 and 2008over wages, employment and poverty. While the macroeconomic effects of a change in the pension system is an issue that is relatively well addressed by the literature, its microeconomic effects are often neglected in the analysis. We use a CGE model to evaluate the effects of the reform on labor market and poverty. Our results indicate that if private pension funds are allocated to physical investment, labor demand and wages increase and poverty goes down. However, these effects fade out if funds of private accounts are used to buy government debt. ∗malzua@cedlas.org, CEDLAS, Universidad Nacional de La Plata, Calle 6, e/47-48. La Plata (1900) Argentina †hruffo@ieral.org, IERAL, Viamonte 610, 2nd floor, Buenos Aires, Arg...
Wage rigidity generates higher unemployment volatility in matching mod- els. By comparing the wag... more Wage rigidity generates higher unemployment volatility in matching mod- els. By comparing the wage dynamics and workers’ mobility during the period 2004-11 in Spain and Latvia we provide empirical evidence to this effect. We find that wages in Spain were rigid even during periods of ris- ing and high unemployment. In contrast, Latvian wages were reduced by about 10 percent and wage cuts affected 60 percent of jobs. At the same time, the elasticity of finding and separation rates to productivity shocks was four times higher in Spain than in Latvia, and that these responses were more persistent in Spain. We use finding and separation conditions from a matching model to show that these empirical results are in line with what a model would predict. We also emphasize that separations are very responsive to shocks, more so in a rigid-wage economy, a fact that has not been highlighted in theoretical literature.
We assess the allocative importance of education when workers can choose to self-employ. To do so... more We assess the allocative importance of education when workers can choose to self-employ. To do so, we build a model combining educational choices with the labor market and selfemployment. Education can increase workers' human capital and may signal their ability as well. Both roles can be more important for working in a firm than for self-employment. We show that when education performs worse its signaling role, firms cannot distinguish high and low productivity workers, and there is a higher proportion of workers that allocate in less productive activities as self-employed. This option further reduces incentives to educate, given that education is less valuable for a worker if self-employed. Lowering the cost of education increases the number of educated workers, but does not solve the signaling problem, and could generate stronger misallocation.
In this paper, we explore the role of trade in the evolution of labor share in Latin American cou... more In this paper, we explore the role of trade in the evolution of labor share in Latin American countries. We use trade agreements with large economies (the United States, the European Union, and China) to capture the effect of sharp changes in trade. In the last two decades, labor share has displayed a negative trend among those countries that signed trade agreements, while in other countries labor share increased, widening the gap by 7 percentage points. We apply synthetic control methods to estimate the average causal impact of trade agreements on labor share. While effects are heterogeneous in our eight case studies, the average impact is negative between 2 to 4 percentage points of GDP four years after the entry into force of the trade agreements. This result is robust to the specification used and to the set of countries in the donor pool. We also find that, after trade agreements, exports of manufactured goods and the share of industry in GDP increase on average, most notably i...
The formation of cognitive and noncognitive skills in adulthood has been scarcely studied in the ... more The formation of cognitive and noncognitive skills in adulthood has been scarcely studied in the economic and psychological literature. The lack of studies addressing this production process is explained in part by past results pointing to the stabilization of skills at the last years of adolescence. However, recent evidence supports the malleability of skills during adulthood. Following the latter strand of the literature, we identify events associated with the destruction of skills during this age. Furthermore, we evaluate the effects of the skills dynamics on labor market outcomes such as wages and employability. We extend the model of formation of skills (Cunha and others , 2010) and estimate it in its reduced form using the 1970 British Cohort Study. Results show that three or more months of unemployment are related to a decrease of 0.15 SD of skills level.
In 1994, Argentina introduced a major reform to its social security system: mainly Pension Reform... more In 1994, Argentina introduced a major reform to its social security system: mainly Pension Reform and Unemployment Benefits. Such reform was part of a vast program aiming at modernizing its economy, including establishing a currency board to reduce inflation, a huge privatization program, trade liberalization and deregulation. The results in terms of stabilization and growth were impressive. Capital inflows and investment also grew very fast. However, employment stagnated, poverty augmented and income distribution worsened. While it can be argued that the deterioration of these social indicators was to some extent the result of the economy being hit by external shocks (Tequila crisis, etc.), the transformation of the social security system also had a significant effect over the evolution of social indicators. We will analyze the effects of the introduction of a new individual accounts in Pension System -which is under ∗malzua@ieral.org, IERAL, Viamonte 610, 2nd floor, Buenos Aires, ...
Este trabajo evalúa el impacto de una política orientada a promover la creación y desarrollo de e... more Este trabajo evalúa el impacto de una política orientada a promover la creación y desarrollo de emprendimientos innovadores en la ciudad de Buenos Aires. El programa recibe unos 100 proyectos por año, de los cuales selecciona a alrededor de la mitad. Asiste a los beneficiarios por medio de capital y asesoramiento técnico a través de instituciones patrocinantes. Mediante una encuesta especialmente diseñada para la evaluación de impacto se encuentran fuertes diferencias entre los emprendimientos que son aprobados y los que no: los beneficiarios tienen una mayor tasa de realización del proyecto, supervivencia, además de mayor empleo, ventas e ingresos. Sin embargo, los beneficiarios son seleccionados por sus características. Para aislar este efecto se utilizan los métodos de discontinuidad: dado que el programa asigna un puntaje a cada proyecto, se compara a los emprendimientos de un lado y del otro del umbral especificado para la selección. A partir de estos métodos se encuentra un im...
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