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Wage-shifting effects of severance payments savings accounts in Colombia

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  • Kugler, Adriana D.

Abstract

In 1990 Colombia replaced its traditional system of severance payments with a new system of severance payments savings accounts (SPSAs). Although severance payments are often justified on the grounds that they provide insurance against earnings loss, they also increase costs for employers and distort employment decisions. The extent of these distortions depends largely on how much of the costs of severance pay can be shifted from employers to workers. One reason why the effects of severance pay may not be completely shifted is that workers may fear the firm will "take the money and run" by declaring bankruptcy. A system of SPSAs eliminates this moral hazard problem, so it should facilitate the shifting of severance payments costs to workers in the form of lower wages. Empirical results using the Colombian National Household Surveys indicate that the introduction of SPSAs lowered wages by between 60% and 80% of total severance payment contributions. These results are consistent with increased shifting after SPSAs were introduced.
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  • Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 487-500, February.
  • Handle: RePEc:eee:pubeco:v:89:y:2005:i:2-3:p:487-500
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    Cited by:

    1. Marco Di Cintio & Emanuele Grassi, 2015. "Wage Incentive Profiles in Dual Labour Markets," Economica, London School of Economics and Political Science, vol. 82(328), pages 790-812, October.
    2. Eslava, Marcela & Haltiwanger, John & Kugler, Adriana & Kugler, Maurice, 2004. "The effects of structural reforms on productivity and profitability enhancing reallocation: evidence from Colombia," Journal of Development Economics, Elsevier, vol. 75(2), pages 333-371, December.
    3. Joshua D. Angrist & Adriana D. Kugler, 2008. "Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 191-215, May.
    4. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2013. "Trade and Market Selection: Evidence from Manufacturing Plants in Colombia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 135-158, January.
    5. Maurice Kugler & John Haltiwanger & Adriana Kugler & Marcela Eslava, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," 2009 Meeting Papers 615, Society for Economic Dynamics.
    6. Brown, Alessio J.G. & Orszag, J. Michael & Snower, Dennis J., 2008. "Unemployment accounts and employment incentives," European Journal of Political Economy, Elsevier, vol. 24(3), pages 587-604, September.
    7. Adriana Kugler & Maurice Kugler & Juan Saavedra & Luis Omar Herrera Prada, 2015. "Long-term Direct and Spillover Effects of Job Training: Experimental Evidence from Colombia," NBER Working Papers 21607, National Bureau of Economic Research, Inc.
    8. Robalino, David & Vodopivec, Milan & Bodor, Andras, 2009. "Savings for unemployment in good or bad times : options for developing countries," Social Protection and Labor Policy and Technical Notes 50320, The World Bank.
    9. Cervini-Plá, María & Ramos, Xavier & Ignacio Silva, José, 2014. "Wage effects of non-wage labour costs," European Economic Review, Elsevier, vol. 72(C), pages 113-137.
    10. Hartley, Gonzalo Reyes & van Ours, Jan C. & Vodopivec, Milan, 2011. "Incentive effects of unemployment insurance savings accounts: Evidence from Chile," Labour Economics, Elsevier, vol. 18(6), pages 798-809.
    11. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2010. "Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 378-391, May.
    12. Fields, Gary S., 2011. "Labor market analysis for developing countries," Labour Economics, Elsevier, vol. 18(S1), pages 16-22.
    13. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    14. Luz Adriana Flórez, 2014. "The Efficiency of the Informal Sector on the Search and Matching Framework," Borradores de Economia 832, Banco de la Republica de Colombia.
    15. Adriana Kugler & Maurice Kugler, 2009. "Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia," Economic Development and Cultural Change, University of Chicago Press, vol. 57(2), pages 335-358, January.
    16. repec:col:000425:015827 is not listed on IDEAS
    17. Goerke, Laszlo, 2007. "Unemployment Insurance Savings Accounts and Collective Wage Determination," IZA Discussion Papers 3141, Institute for the Study of Labor (IZA).
    18. Adriana D. Kugler & Maurice D. Kugler & Luis O. Herrera-Prada, 2017. "Do Payroll Tax Breaks Stimulate Formality? Evidence from Colombia’s Reform," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2017), pages 3-40, November.
    19. Rita Almeida & Pedro Carneiro, 2012. "Enforcement of Labor Regulation and Informality," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 64-89, July.
    20. International Monetary Fund, 2014. "Algeria; Selected Issues Paper," IMF Staff Country Reports 14/342, International Monetary Fund.
    21. Rita Almeida & Pedro Carneiro, Renata Narita, 2013. "Producing Higher Quality Jobs: Enforcement of Mandated Benefits across Brazilian Cities between 1996-2007," Working Papers, Department of Economics 2013_22, University of São Paulo (FEA-USP).
    22. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2014. "The Effects of Regulations and Business Cycles on Temporary Contracts, the Organization of Firms and Productivity," CEDLAS, Working Papers 0154, CEDLAS, Universidad Nacional de La Plata.
    23. Attanasio, Orazio & Kugler, Adriana & Meghir, Costas, 2009. "Subsidizing Vocational Training for Disadvantaged Youth in Developing Countries: Evidence from a Randomized Trial," IZA Discussion Papers 4251, Institute for the Study of Labor (IZA).
    24. Orazio Attanasio & Adriana Kugler & Costas Meghir, 2008. "Training Disadvantaged Youth in Latin America: Evidence from a Randomized Trial," NBER Working Papers 13931, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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