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Social Insurance Reform and Labor Market Outcomes in Sub-Saharan Africa: Evidence from Ethiopia

Author

Listed:
  • Shiferaw, Admasu

    () (College of William and Mary)

  • Bedi, Arjun S.

    () (ISS, Erasmus University Rotterdam)

  • Söderbom, Mans

    () (University of Gothenburg)

  • Alemu, Getnet

    () (University of Addis Ababa, Ethiopia)

Abstract

This paper examines the labor market implications of a mandatory social insurance scheme introduced in Ethiopia in 2011 for private sector employees in the formal sector. We use firm-level panel data and exploit differences in pre-reform pension plans across firms to identify the effects of the reform. We find no evidence of employers fully shifting the cost of pension benefits to workers in the form of lower wages. In fact the reform seems to be associated with an increase in real wage rates particularly among large firms. Firm-level employment declined after the reform with a greater contraction among firms without pre-reform provident funds and firms that were initially small. The composition of the workforce also shifted in favor of skilled workers although this effect may not be attributed entirely to the pension reform. We also find an increase in firm-level investment, capital per worker, and labor productivity.

Suggested Citation

  • Shiferaw, Admasu & Bedi, Arjun S. & Söderbom, Mans & Alemu, Getnet, 2017. "Social Insurance Reform and Labor Market Outcomes in Sub-Saharan Africa: Evidence from Ethiopia," IZA Discussion Papers 10903, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10903
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    References listed on IDEAS

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    1. Mariano Bosch & Raymundo M. Campos-Vazquez, 2014. "The Trade-Offs of Welfare Policies in Labor Markets with Informal Jobs: The Case of the "Seguro Popular" Program in Mexico," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 71-99, November.
    2. Case, Anne & Deaton, Angus, 1998. "Large Cash Transfers to the Elderly in South Africa," Economic Journal, Royal Economic Society, vol. 108(450), pages 1330-1361, September.
    3. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters,in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
    4. Jung, Juergen & Tran, Chung, 2012. "The extension of social security coverage in developing countries," Journal of Development Economics, Elsevier, pages 439-458.
    5. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
    6. Chetty, Raj & Looney, Adam, 2006. "Consumption smoothing and the welfare consequences of social insurance in developing economies," Journal of Public Economics, Elsevier, pages 2351-2356.
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    More about this item

    Keywords

    social insurance; pension reform; labor markets; Ethiopia;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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