emphasizing moral hazard effects of UB in developing economies (e.g., Van Doornik et al. 2018), these studies underscore the scarcity of formal jobs in developing countries as a key factor reducing the likelihood of reemployment in the formal sector.

Another argument concerning the efficiency of UB in developing countries is the weaker institutional capacity of these countries in administrating and monitoring UB system. In the majority of developing countries, UB covers a small percentage of population and social security database is not well developed. Therefore, in these countries, protecting jobs – through stricter labor market regulations, such as higher severance pay or restrictions in hiring and firing policies – is more common than protecting workers – through social protection or unemployment benefits (Vodopivec 2013; Holzmann et al. 2012; Asenjo and Pignatti 2019; and Ozkan 2020). High economic cost of strict labor regulations has been well established in the literature, leading to the adoption of “flex-security” policies by many countries that combines relaxing labor regulations and increasing social security and unemployment benefits.

For example, in Brazil, Britto (2022) found that severance pay, which is a one-time lump sum payment to unemployed individuals has more detrimental effect on formal employment and reemployment earnings than extension in UB period, as the latter provides more bargaining power to the job seeker and involves in training and job matching support. Gerard and Naritomi (2021) also showed that upon receiving lump sum severance payment at layoff, workers increased their consumption by 35 percent despite experiencing a 14 percent long-term loss, indicating bias for present time and the importance of the disbursement timing of unemployment and social protection.

In an effort to increase the efficiency of UB system in an environment with limited administrative capacity, Chile introduced a two-tiered UB program in 2002, which provided benefits through a combination of mandatory individual insurance accounts fully funded by individual contributions and solidarity funding. The first tier would minimize disincentive and moral hazard and the second tier, funded by general tax, would protect vulnerable population without impeding formal jobs (Duval and Loungani, 2019). Other developing countries, such as Brazil, Colombia, Jordan, and Mauritius followed the suit. In Chile, the evaluation of the program revealed that an extension of UB period led to a longer duration of unemployment for beneficiaries utilizing the solidarity fund. However, for those dependent on selffunded individual insurance, there was no change in the duration of unemployment, suggesting the absence of moral hazard in the latter group (Hartley et al. 2010; Sehnbruch et al. 2022).

The impact of UB scheme on productivity and re-employment wages is mixed and the analyses focus on developed countries. On one hand a longer UB duration raises reservation wage as it gives UB recipients more time to search for better jobs and to receive training, on the other hand it lowers wages offered by employers. Research by Soltes (2017) using data from 16 developed countries suggests that a one-indexpoint increase in the UB generosity index is associated with about a one-percentage-point increase in total factor productivity (TFP) growth. In the United States, longer UB duration encouraged workers to seek higher productivity jobs, particularly for those with lower education levels, and promoted job creation (Acemoglu and Shimer 2000; Centeno and Novo 2006). In Austria, there was a 0.5 percent increase in reemployment wage (Nekoei and Weber 2017), while in Germany there was a 0.8 percent reduction in 6