Unemployment insurance and income protection in Ecuador

This paper explores the role of the recently introduced unemployment insurance benefit (seguro de desempleo) in protecting incomes in case of unemployment in Ecuador. We use ECUAMOD, the tax-benefit microsimulation model for Ecuador, to simulate entitlement to the unemployment insurance benefit and calculate its effect on household disposable income in case individuals enter unemployment. Our results show that only around a quarter of the working age population would be covered in case of unemployment. Mean net replacement rates would increase from 51.44 to 54.5 per cent whereby protection by and large still rests on market income from other household members. Unemployment insurance would reduce the risk of falling into poverty in case of unemployment and would increase household income stabilization, although to a limited extent. Due to the high levels of informality (i.e. non-affiliation to social security) and the characteristics of the unemployment insurance scheme in Ecuador, the largest gains would be concentrated among middle-aged male employees at the top of the earnings distribution. Our analysis contributes to the recent debates about designing unemployment insurance schemes in Latin America and highlights the importance of considering the relevance of self-employment and informality in the design of such schemes.