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Social Assistance and Informality: Examining the link in Colombia

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  • Monica Ospina Londoño

    ()

  • Fabiola Saavedra-Caballero

    ()

Abstract

This paper presents evidence on the labor market effects of social assistance programs in the short and medium run. We evaluate the impacts of a Conditional Cash Transfer program (Familias en Acción) on informality in Colombia. We exploit an exogenous shock linked to cash transfer benefits that the government provides to poor people to evaluate the effect of these benefits on informality. We argue that being a beneficiary of social programs may create perverse incentives that drive people towards informality through a substitution effect. Survey data of “Familias en Acción” program was used to identify whether the program had any effect on workers’ labor decisions concerning participation (or the lack thereof) in the informal labor market in Colombia after one and four years after its implementation. We apply matching algorithms and difference-in-differences estimations to evaluate the effect of the program. We find that a worker’s informality condition may be affected by receiving CCT income and by the structure of the colombian health system.

Suggested Citation

  • Monica Ospina Londoño & Fabiola Saavedra-Caballero, 2013. "Social Assistance and Informality: Examining the link in Colombia," DOCUMENTOS DE TRABAJO CIEF 010933, UNIVERSIDAD EAFIT.
    • Handle: RePEc:col:000122:010933
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    References listed on IDEAS

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    1. Baez, Javier E. & Camacho, Adriana, 2011. "Assessing the Long-term Effects of Conditional Cash Transfers on Human Capital: Evidence from Colombia," IZA Discussion Papers 5751, Institute for the Study of Labor (IZA).
    2. Garcia Penalosa, Cecilia & Turnovsky, Stephen J., 2005. "Second-best optimal taxation of capital and labor in a developing economy," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1045-1074, June.
    3. Hugo LóPEz Castaño & Francisco Lasso Valderrama, 2012. "El mercado laboral y el problema pensional colombiano," Borradores de Economia 736, Banco de la Republica de Colombia.
    4. Guataquí R., Juan Carlos & García S., Andrés Felipe & Rodríguez A., Mauricio, 2010. "El Perfil de la Informalidad Laboral en Colombia," PERFIL DE COYUNTURA ECONÓMICA, UNIVERSIDAD DE ANTIOQUIA - CIE, November.
    5. Oskar Nupia, 2011. "Anti-Poverty Programs and Presidential Election Outcomes: Familias en Acción in Colombia," DOCUMENTOS CEDE 008743, UNIVERSIDAD DE LOS ANDES-CEDE.
    6. Bryson, Alex & Dorsett, Richard & Purdon, Susan, 2002. "The use of propensity score matching in the evaluation of active labour market policies," LSE Research Online Documents on Economics 4993, London School of Economics and Political Science, LSE Library.
    7. Sebastian Galiani & Federico Weinschelbaum, 2012. "Modeling Informality Formally: Households And Firms," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 821-838, July.
    8. Adriana Camacho & Emily Conover & Alejandro Hoyos, 2014. "Effects of Colombia's Social Protection System on Workers' Choice between Formal and Informal Employment," World Bank Economic Review, World Bank Group, vol. 28(3), pages 446-466.
    9. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    10. Gasparini Leonardo & Leonardo Tornaroli, 2009. "Labor Informality in Latin America and the Caribbean: Patterns and Trends from Household Survey Microdata," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
    11. Enste, Dominik & Schneider, Friedrich, 1998. "Increasing Shadow Economies all over the World - Fiction or Reality?," IZA Discussion Papers 26, Institute for the Study of Labor (IZA).
    12. Orazio Attanasio & Emla Fitzsimons & Ana Gómez & Diana Lopez & Costas Meghir & Alice Mesnard, 2006. "Child education and work choices in the presence of a conditional cash transfer programme in rural Colombia," IFS Working Papers W06/01, Institute for Fiscal Studies.
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    More about this item

    Keywords

    informality; conditional cash transfers; evaluation;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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