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Unemployment insurance in Algeria : implications for a labor market in transition, Volume 1
Author:Ruppert, Elizabeth; Country:Algeria;
Date Stored:1996/09/01Document Date:1996/09/30
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Economic Theory & Research; Banks & Banking Reform; Health Economics & Finance; Labor Policies; Labor Markets
Language:EnglishMajor Sector:(Historic)Social Protection
Region:Middle East and North AfricaReport Number:WPS1659
Sub Sectors:Labor Markets & EmploymentCollection Title:Policy, Research working paper ; no. WPS 1659
Volume No:1  

Summary: To predict how Algeria's unemployment crisis will evolve, the author evaluates the Algerian unemployment insurance system's ability to finance itself, to affect employment decisions, and promote enterprise restructuring. The main conclusion is that industrial restructuring has serious and persistent implications for the labor market. In an environment where many equilibria are possible, there is a real danger of reaching a high unemployment equilibrium. The big-bang experience of structural adjustment in Central and Eastern Europe transition economies resulted in large-scale unemployment. Despite considerable restructuring progress, structural rigidities still exist in the labor market, and long-term unemployment has persisted. One advantage of the big-bang approach is adjustment speed, but the resulting unemployment may be too costly for Algeria's economy, especially if it persists. A more modern mixed bang approach would incorporate active employment measures to mitigate entrenched unemployment. The policies will maintain or enhance human capital through work, so idle workers don't lose their skills. Flex-time arrangements would help workers maintain an attachment to the labor force. However minor, such work would help workers avoid the traps of long-term unemployment. Two striking conclusions emerge from the Central and Eastern European experience: a) unemployment is not essential to enterprise restructuring and labor market adjustment; and b) growing long-term unemployment is self-fulfilling and results in higher and persistence unemployment. Although active employment measures are costly and have relatively low rates of return in the short run, they can be marginally effective as part of a long-term strategy.

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