Designing Unemployment Insurance Systems for Developing Countries: Implications from the Unemployment Insurance Savings Accounts Model

Abstract

In the context where informal employment accounts for a large share of the labor force in developing countries, designing an effective unemployment insurance system has become an urgent challenge. This paper introduces and analyzes the model of Unemployment Insurance Savings Accounts (UISA). The UISA model, when fully funded by the government, not only improves workers’ welfare but also creates incentives for transitions from the informal sector to the formal sector. The paper also provides several policy recommendations for Vietnam in implementing this model to reduce unemployment and expand the coverage of the social security system.