Unemployment Insurance or Individual Savings Accounts: Can Chile'S New Scheme Serve as a Model for Other Developing Countries?

In 2002 the Chilean government implemented new legislation for an unemployment insurance scheme. It has been presented at both national and international levels as a model for other developing countries, because it provides protection against unemployment, avoids issues of moral hazard associated with traditional unemployment insurance systems, and has a relatively low public finance requirement. The insurance combines a system of individual savings accounts with a publicly financed contingency fund. This article examines how it will work in practice, and whether it can indeed serve as a model.