In times of crisis, the ability of workers who lose their jobs to retain their purchasing power has important social and economic implications. A high replacement rate (ratio of unemployment benefits a worker receives relative to the worker’s last gross earning) ensures that the negative effects of rising unemployment on aggregate demand are mitigated. It also prevents workers from falling into poverty when they lose their jobs.
The table below shows the gross replacement rate in the first year of unemployment for as many countries as is available. The data is taken from a recent IMF working paper (see end of post for full reference). I have ranked countries from highest to lowest (restricting the sample to those countries which replacement rate is superior to 0).
An interesting finding is that European countries did not have the monopoly of high replacement rates in 2000. This challenges the notion that high economic development is a necessary or sufficient condition for protection fo workers to be high. Indeed, workers who have unemployment insurance in non-EU countries sometimes score higher. For instance, in the top 10 one finds Ukraine, Algeria, and Taiwan, while Russia, Tunisia, Romania and Hong Kong make it into the top 20.
The Anglo Saxon countries rank poorly: UK (46th), Australia (43rd) and Ireland (39th); US (31st) i.e.: coming after Venezuala, Azerbaijan, Egypt, Belarus... The picture for Eastern European countries is more mixed with Bulgaria (16th), Romania (18th), Ukraine (9th) doing ok, whereas others do not do so well: Estonia (48th), Poland (41st), Czech Republic (42nd).
|Country||Gross Replacement Rate, year 1||Ranking|
Data taken from: Mariya Aleksynska and Martin Schindler (2011) Labor Market Regulations in Low-, Middle- and High-Income Countries: A New Panel Database. IMF Working Paper.