  Unemployment insurance transfers should balance the provision of consumption
to the unemployed with the disincentive effects on the search behavior.
Developing countries face the additional challenge of informality. Workers can
choose to hide their employment state and labor income in informal jobs, an
additional form of moral hazard. To provide evidence about the effects of this
policy in a country affected by informality we exploit kinks in the schedule of
transfers in Argentina. Our results suggest that higher benefits induce
moderate behavioral responses in job-finding rates and increase re-employment
wages. We use a sufficient statistics formula from a model with random wage
offers and we calibrate it with our estimates. We show that welfare could rise
substantially if benefits were increased in Argentina. Importantly, our
conclusion is relevant for the median eligible worker that is strongly affected
by informality.
