Labor Market Effects of Universal Basic Income in Developing Economies

• Grant number: 22/07879-7
• Support Opportunities: Scholarships in Brazil - Doctorate (Direct)
• Effective date (Start): March 01, 2023
• Effective date (End): January 31, 2025
• Field of knowledge: Applied Social Sciences - Economics - Growth, Fluctuations and Economic Planning
• Principal Investigator: Marcelo Rodrigues dos Santos
• Grantee: Guilherme Gomez Gallego
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil

Abstract

Rising unemployment, poverty, and inequality are increasing concerns around the world. Transfer programs often are raised as a path to mitigate such economic outcomes. Beyond the impact on distributive indicators, this paper studies the impact of universal transfer programs on vacancy creation, wages, and welfare using a search-and-matching model where workers and firms jointly sort between formal and informal jobs. The purpose of this study is to unravel and analyze the aggregate and distributive effects of replacing the current transfer system with an Universal Basic Income (UBI) program in Brazil, a developing economy with widespread informality. We calibrate the general equilibrium model to match key moments concerning unemployment, wage, wealth distributions, and the distribution of transfers for the Brazilian economy. Moreover, this work models unemployment insurance benefits, which are related to pre-unemployment earnings of the formal workers, while informal workers are not eligible.