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Does Expanding Health Insurance Beyond Formal-Sector Workers Encourage Informality?: Measuring the Impact of Mexico's Seguro Popular

  • Reyes Aterido
  • Mary Hallward-Driemeier
  • Carmen Pagés-Serra

Seguro Popular (SP) was introduced in 2002 to provide health insurance to the 50 million Mexicans without Social Security. This paper tests whether the program has had unintended consequences, distorting workers' incentives to operate in the informal sector. The analysis examines the impact of SP on disaggregated labor market decisions, taking into account that program coverage depends not only on the individual's employment status, but also on that of other household members. The identification strategy relies on the variation in SP's rollout across municipalities and time, with the difference-in-difference estimation controlling for household fixed effects. The paper finds that SP lowers formality by 0.4-0.7 percentage points, with adjustments largely occurring within a few years of the program's introduction. Rather than encouraging exit from the formal sector, SP is associated with a 3.1 percentage point reduction (a 20 percent decline) in the inflow of workers into formality. Income effects are also apparent, with significantly decreased flows out of unemployment and lower labor force participation. The impact is larger for those with less education, in larger households, and with somebody else in the household guaranteeing Social Security coverage. However, workers pay for part of these benefits with lower wages in the informal sector.

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Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 81001.

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Date of creation: Jul 2011
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Handle: RePEc:idb:brikps:81001
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  1. Bosch, Mariano & Maloney, William, 2006. "Gross worker flows in the presence of informal labor markets : the Mexican experience 1987-2002," Policy Research Working Paper Series 3883, The World Bank.
  2. Raymundo M. Campos-Vázquez & Melissa A. Knox, 2013. "Social Protection Programs and Employment: The Case of Mexico's Seguro Popular Program," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 403-448, July-Dece.
  3. Azuara, Oliver & Marinescu, Ioana, 2011. "Informality and the expansion of social protection programs," MPRA Paper 35073, University Library of Munich, Germany.
  4. Sandra G. Sosa-Rubi & Omar Galarraga & Jeffrey E. Harris, 2007. "Heterogeneous Impact of the "Seguro Popular" Program on the Utilization of Obstetrical Services in Mexico, 2001-2006: A Multinomial Probit Model with a Discrete Endogenous Variable," NBER Working Papers 13498, National Bureau of Economic Research, Inc.
  5. Leonardo Gasparini & Francisco Haimovich & Sergio Olivieri, 2007. "Labor Informality Effects of a Poverty-Alleviation Program," CEDLAS, Working Papers 0053, CEDLAS, Universidad Nacional de La Plata.
  6. Adriana Camacho & Emily Conover & Alejandro Hoyos, 2009. "Effects of Colombia's Social Protection System on Workers' Choice between Formal and Informal Employment," DOCUMENTOS CEDE 006003, UNIVERSIDAD DE LOS ANDES-CEDE.
  7. Carmen Pagés-Serra & Marco Stampini, 2007. "No Education, No Good Jobs? Evidence on the Relationship between Education and Labor Market Segmentation," Research Department Publications 4561, Inter-American Development Bank, Research Department.
  8. Laura Juarez, 2008. "Are Informal Workers Compensated for the Lack of Fringe Benefits? Free Health Care as an Instrument for Formality," Working Papers 0804, Centro de Investigacion Economica, ITAM.
  9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  10. Carmen Pages & Lucia Madrigal, 2008. "Is Informality a Good Measure of Job Quality? Evidence from Job Satisfaction Data," Research Department Publications 4603, Inter-American Development Bank, Research Department.
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