Unemployment Insurance Design and Its Effects: Evidence for Uruguay

Using unemployment insurance records and social security labor histories, we provide evidence of the impacts of recent changes in the unemployment insurance system of Uruguay. We estimate the effects on unemployment duration and post unemployment wages. Two main changes are considered: the modification in the scheme of payments —from a lump sum during six months to a decreasing system of payments during the same period— and extension in the duration of the benefit up to one year for workers 50 or older. We consider different impact evaluation techniques (propensity score, difference in differences and regression discontinuity), and find that the change in the payment scheme has implied a small reduction in unemployment duration, with no effects in terms of subsequent earnings. The possibility of extension of the unemployment insurance for older workers has led to an extension in unemployment duration and it has not helped to subsidize better job matches in the form of better paying jobs.