Unemployment insurance: Theoretical approaches and empirical evidence

This article analyses the principal theoretical approaches to the effects on the labour market when an unemployment insurance scheme is introduced. The article also reviews the international data derived from such insurance schemes already in use in some European and American economies. The principal conclusion of this study is that an unemployment scheme does not necessarily affect employment decisions adversely, nor does it encourage long‐term unemployment. Furthermore, to the extent that this analysis goes beyond the traditional limits of the employment‐unemployment relationship and considers the institutional aspects, which can be at least as important as the individual benefits, the effects on employment and on the allocation of resources in the economy can be positive. Finally, the study identifies some criteria to be considered when designing the scheme, such as the level of benefits, the period for which they are granted, the type of beneficiary covered, the type of financing and its relationship to the quality of the information and its complementary role in the process of adapting the labour force to new demands.