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The World Bank Research Observer Advance Access published online on February 14, 2006
The World Bank Research Observer, doi:10.1093/wbro/lkj003
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

Article

Choosing a System of Unemployment Income Support: Guidelines for Developing and Transition Countries

Milan Vodopivec 1 *

1 Senior economist in the Social Protection Unit, Human Development Network, South Asia Region at the World Bank

* To whom correspondence should be addressed.
Milan Vodopivec, E-mail: mvodopivec{at}worldbank.org


  Abstract

Mounting evidence suggests that excessive job protection reduces employment and labor market flows, hinders technological innovations, pushes workers into the informal sector, and hurts vulnerable groups by depriving them of job opportunities. Flexible labor markets stimulate job creation, investment, and growth, but they create job insecurity and displace some workers. How can the costs of such insecurity and displacements be minimized while ensuring that the labor market remains flexible? Each of the main unemployment income support systems (unemployment insurance, unemployment assistance, unemployment insurance savings accounts, severance pay, and public works) has strengths and weaknesses. Country-specific conditions--chief among them labor market and other institutions, the capacity to administer each type of system, and the size of the informal sector--determine which system is best suited to developing and transition countries.


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