Publication: Comparing Unemployment Insurance and Unemployment Assistance
Date
2004-02
ISSN
Published
2004-02
Author(s)
Vodopevic, Milan
Abstract
Markets alone cannot provide adequate
protection against the risk of unemployment. Private
unemployment insurance (UI) fails because of informational
problems: the so-called moral hazard (changes in behavior in
the presence of insurance that are impossible or very costly
to detect) and adverse selection problems (high-risk workers
make insurance unattractive to average- and low-risk
workers). Hence the mandate for social policy. But social
policy has to deal with the same problems that render
markets inefficient. Mandatory participation mitigates the
problem of adverse selection, but the moral hazard problems
remain. In addition, the existence of a social protection
program may give rise to inefficiencies of its own.
Particularly with the rise of unemployment in European Union
in the last two decades, inefficiencies created by UI, the
traditional and most widely used public program of income
support for the unemployed in developed economies, have
become more widely discussed, and solutions and alternatives sought.
Citation
“Vodopevic, Milan. 2004. Comparing Unemployment Insurance and Unemployment Assistance. World Bank Employment Policy Primer; No. 3. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/81561cb7-45e3-573a-8068-1425074ecf7e License: CC BY 3.0 IGO.”