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

Listed author(s):
  • 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)

Registered author(s):

    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.

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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10903.

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    Length: 45 pages
    Date of creation: Jul 2017
    Handle: RePEc:iza:izadps:dp10903
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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. Chetty, Raj & Looney, Adam, 2006. "Consumption smoothing and the welfare consequences of social insurance in developing economies," Journal of Public Economics, Elsevier, vol. 90(12), pages 2351-2356, December.
    3. Clement Joubert, 2015. "Pension Design With A Large Informal Labor Market: Evidence From Chile," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 673-694, 05.
    4. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
    5. Jung, Juergen & Tran, Chung, 2012. "The extension of social security coverage in developing countries," Journal of Development Economics, Elsevier, vol. 99(2), pages 439-458.
    6. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    7. Cruces, Guillermo & Galiani, Sebastian & Kidyba, Susana, 2010. "Payroll taxes, wages and employment: Identification through policy changes," Labour Economics, Elsevier, vol. 17(4), pages 743-749, August.
    8. 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.
    9. 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.
    10. 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.
    11. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
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