Unemployment Insurance Systems for Latin America

Abstract

The traditional way in which most Latin American countries have protected the unemployed is through a combination of high severance payments and low unemployment insurance or unemployment assistance, the latter typically having low coverage. The high severance payments contribute to create “job security” for those that benefit from them, the salaried workers of the formal sector. But such workers obtain their “job security” at the cost of reduced employment creation, less capacity by firms to adapt to change and engage in technical innovation, and an increase in “atypical” contracts and informal jobs. A system of low unemployment benefits coupled with low coverage, also concentrates the risks of the job market on those workers who lose their jobs. These risks are shared through a strong segmentation between the insiders in the formal sector who enjoy strong “job security,” and the rest of the workers, who in most cases constitute the majority of the labor force, and who have fewer jobs, “atypical” contracts or no contracts at all, and limited access to the very unsatisfactory unemployment protection which exists.