covariate shocks. For example, 80 percent of Argentines would turn to family, neighbors or friends if they became unemployed but only 40 percent would turn to this group in periods of wide-spread unemployment (World Bank 2001).<sup>24</sup> The large fraction of workers delinked from formal institutions and the relative frequency of large covariate shocks has led the region to experiment with three mechanisms which vary in goals and which depend to differing degrees on existing institutions for targeting and the quality of administrative capacity.<sup>25</sup> Workfare programs such as _Trabajar_ in Argentina self target by putting wages below market thereby being attractive only to those without other options. The program was less successful in Colombia where legal barriers proscribe subminimum wages payments; instead greater effort was put into conditional transfer programs that relied on well established targeting systems and training programs. These tend to benefit the young and informal sector workers. Conditional cash transfer programs tweaked with counter cyclical triggering devices can help families smooth crises while defusing somewhat concerns about _asitencialismo_ , but they require existing household poverty mappings for targeting which can be administratively complex and are less well suited to target those affected by employment shocks. Training programs for, particularly youth, combine cash infusion with human capital accumulation.

# **Future Work**<sup>**26**</sup>

- **<u>Nature of unemployment shocks.</u>** A mapping of the probability, duration, and

- demographic distribution of employment shocks is, in theory, necessary to know whether systems should emphasize self insurance, as LAC has done, versus pooling risk through true UI as ECA has done.

- **<u>Quantification of effects on labor supply and remuneration.</u>** As a complement, more

- research is needed on the magnitude of the moral hazard issues in terms of reduced search and hence higher unemployment. The most common areas of UI research in the US and European literature is the employment disincentive effects (to a much lesser extent) measured by unemployment duration and (to an even lesser extent) the re-employment wage effect. For LAC economies, a third issue – sector of re-employment – is also a highly relevant issue.

- **<u>Formal, informal and non-standard safety nets.</u>** A better understanding of the efficacy

- of private safety nets is necessary so as not to crowd out mechanisms with good monitoring with public programs that are more subject to moral hazard. To the degree that informal mechanisms perform poorly, particularly during periods of highly covariate shocks, further exploration of alternate vehicles for channeling income support are necessary.

- **<u>Redistributional issues.</u>** Taking the social protection program as a whole,  who pays and who benefits?  A UI program financed by the VAT, for instance, is a transfer to the middle class from the general population.

> 24 This has big implications on who is eligible for the program; in Brazil, for example, only 40 percent of the labor force is eligible for UI, and less than 10 percent of the unemployed benefit from the UI program. De Ferranti, et. al. (2000) 25 See De Ferranti et al (2000) “Securing our Future” as well as Maloney (2003) for a discussion of the design of emergency programs.

> 26 See also Fiszbein (2004): Beyond Truncated Welfare States:Quo Vadis Latin America” for a think piece on this topic.

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