The Welfare and Labor Market Effects of Job-Displacement Insurance

We propose an experiment to study the welfare and labor market impacts of expanding job-displacement insurance in Ethiopia. A large ready-made garment factory in the Hawassa Industrial Park will lay off around 2,000 workers by end of July 2022.  As is common in low-income countries, these workers will be eligible for a modest lump-sum severance pay and will not receive unemployment insurance. Recent research suggests that many of them will be unable to secure another job quickly, food security will deteriorate, and they will return to their homes in the countryside (Hardy et al., 2022). In this project, we will evaluate the impacts of offering (i) an “income support” scheme which pays 60 percent of the worker’s wage for 5 months, irrespective of employment status and (ii) a single lump-sum payment of the same present value as the income support scheme. Through high-frequency surveys, we will study impacts on consumption, well-being, job-search, employment outcomes, migration and demand for formality and job-displacement insurance.