January 9, 2013
Unemployment Insurance (UI) is a standard component of the social safety net in developing countries, providing households with cash income to carry them over during job search after job loss. This paper reviews the theory and evaluation evidence—from the U.S. and from Europe—on the impact of UI programs. That evaluation literature reveals a clear trade-off, longer and more generous UI programs lead to longer spells of unemployment and only mixed evidence of finding a better job. The literature also showed that increased enforcement of job search requirements clearly leads to shorter UI durations, with only mixed evidence on impacts on job quality. Buillding on this review, the paper considers appropriate reforms to UI in response to a combination of an apparent long-term loss of American competitiveness and the Great Recession, suggesting consideration of increased enforcement of UI’s job search requirement.