Unemployment Assistance and Transition to Employment in Argentina

In 2001-02, Argentina experienced a wrenching economic crisis. Plan Jefes, implemented in May 2002, was Argentina's institutional response to the increases in unemployment and poverty triggered by the crisis. The program provided a social safety net and appears to have successfully protected families against indigence. Despite this success, the continued existence of the program, which provides benefits to eligible unemployed individuals for an unlimited duration, may have unappealing long-term consequences. Reliance on the plan may reduce the incentive to search for work and in the long-run may damage individual employability and perpetuate poverty. Motivated by these concerns, this paper examines the effect of participating in Plan Jefes on the probability of exiting from unemployment. Regardless of the data set, the specification, the empirical approach and the control group, the evidence assembled in this paper shows that for the period under analysis individuals enrolled in the Plan are at least 20 percentage points less likely to transit to employment as compared to individuals who are not on the Plan. The negative effect of the program tends to be larger for females and as a consequence, over time, the program becomes increasingly feminized. Prima facie, the estimates suggest that programs such as Plan Jefes need to re-consider the balance between providing a social safety net and dulling work incentives.