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Labor Informality and the Incentive Effects of Social Security: Evidence from a Health Reform in Uruguay

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Author Info

  • Marcelo Bérgolo
  • Guillermo Cruces

Abstract

This paper studies the incentive effects of social security benefits on labor market informality following a policy reform in Uruguay. The reform extended health benefits to dependent children of private sector salaried workers, and thus altered the incentive structure of holding formal jobs within the household. The identification strategy of the reform¿s effects relies on a comparison between workers with children (affected by the reform) and those without children (unaffected by the reform). Difference in differences estimates indicate a substantial effect of this expansion of coverage on informality rates, which fell significantly by about 1.3 percentage points (a 5 percent change) among workers in the treatment group with respect to those in the control group. The evidence also indicates that individuals within households jointly optimized their allocation of labor to the formal and informal sector. Workers responded to the increased incentives for only one member of the household to work in the formal sector. These findings provide evidence of the relevant and substantial incentive effects of social security benefits on the allocation of employment.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 62318.

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Date of creation: Mar 2011
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Handle: RePEc:idb:brikps:62318

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Related research

Keywords: Workforce & Employment; Social Security; Health Policy; CEDLAS;

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  1. Labor Informality and the Incentive Effects of Social Security: Evidence from a Health Reform in Uruguay
    by Maximo Rossi in Wikiprogress América Latina on 2012-02-24 14:26:00
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Cited by:
  1. Fernando Borraz & Nicolás González & Máximo Rossi, 2013. "Polarization and the Middle Class in Uruguay," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 50(2), pages 289-326, November.
  2. Marcelo Bergolo & Guillermo Cruces, 2014. "Work and tax evasion incentive effects of social insurance programs. Evidence from an employment-based benefit extension," CEDLAS, Working Papers 0161, CEDLAS, Universidad Nacional de La Plata.
  3. Camacho, Adriana & Conover, Emily & Hoyos, Alejandro, 2013. "Effects of Colombia's social protection system on workers'choice between formal and informal employment," Policy Research Working Paper Series 6564, The World Bank.

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