Privatized Unemployment Insurance: Can Chile’s New Unemployment Insurance Scheme Serve as a Model for Other Developing Countries?
In 2002 the Chilean government implemented new legislation for an unemployment insurance scheme which has been presented both at a national and international level as a model for other developing countries, because it provides protection against unemployment, avoids issues of moral hazard associated with traditional unemployment insurance systems, and has a relatively low public finance requirement. The scheme, which is financed principally through individual savings accounts, but also institutes a government financed contingency fund for workers with insufficient savings, has been described by the ILO as “new legislation that could lead to a new generation of reforms in unemployment insurance matters.” But before this scheme is copied by other developing countries, and perhaps also by developed ones, we should ask whether it really does provide adequate insurance for the unemployed. Initial research conducted on the Chilean case suggests that good quality jobs in the formal sector will be well covered by this insurance scheme, whereas precarious and low income jobs will hardly be covered at all. Since workers with low quality jobs face a far higher probability of becoming unemployed, this means that the vast majority of the unemployed will not benefit from this insurance system. This paper is the first published account of how this unemployment insurance will work in practice.