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The Impact of Colombia's Pension and Health Insurance Systems on Informality

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  • Calderón-Mejía, Valentina

    (University of Chicago)

  • Marinescu, Ioana E.

    (University of Pennsylvania)

Abstract

Social protection systems in developing countries are typically composed of a bundle of benefits, the major ones being health insurance and pensions. Benefit bundling may increase informality and decrease welfare. Indeed, if some of the benefits are valued at substantially less than their cost, workers may choose to forego all benefits, even though some other benefits are valued at or above their cost. We examine the impact of benefit bundling using a series of Colombian reforms. The key reform is the unification of the payment systems for health and pension, which made it more difficult to contribute differently to the one plan versus the other. Using the progressive roll-out of the unified payment system by firm size, we show that benefit bundling increases both full formality and full informality by about 1 percentage point. The increase in full formality is concentrated among salaried workers in small to medium firms, while the increase in full informality is concentrated among independent workers.

Suggested Citation

  • Calderón-Mejía, Valentina & Marinescu, Ioana E., 2012. "The Impact of Colombia's Pension and Health Insurance Systems on Informality," IZA Discussion Papers 6439, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp6439
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    References listed on IDEAS

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    1. Adriana Camacho & Emily Conover & Alejandro Hoyos, 2014. "Effects of Colombia's Social Protection System on Workers' Choice between Formal and Informal Employment," The World Bank Economic Review, World Bank, vol. 28(3), pages 446-466.
    2. Pagés, Carmen & Madrigal, Lucía, 2008. "Is Informality a Good Measure of Job Quality?: Evidence from Job Satisfaction Data," IDB Publications (Working Papers) 1098, Inter-American Development Bank.
    3. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    4. Kugler, Adriana & Kugler, Maurice, 2003. "The Labor Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," IZA Discussion Papers 852, Institute of Labor Economics (IZA).
    5. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    6. Sebastian Galiani & Federico Weinschelbaum, 2012. "Modeling Informality Formally: Households And Firms," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 821-838, July.
    7. Oecd, 2009. "Employment and Social Protection," OECD Journal on Development, OECD Publishing, vol. 9(4), pages 7-54.
    8. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications - Books, The World Bank Group, number 6730, December.
    9. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," The World Bank Economic Review, World Bank, vol. 13(2), pages 275-302, May.
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    Cited by:

    1. Darwin Cortés & Darío Maldonado & Giselle Vesga, 2015. "Parametric Pension Reform and the Intensive Margin of Labor Supply, Evidence from Colombia," Documentos de Trabajo 12476, Universidad del Rosario.
    2. Tobias Pfutze & Carlos Rodríguez-Castelán, 2019. "Can a Small Social Pension Promote Labor Force Participation? Evidence from the Colombia Mayor Program," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2019), pages 111-154, October.
    3. Adriana Camacho & Emily Conover & Alejandro Hoyos, 2014. "Effects of Colombia's Social Protection System on Workers' Choice between Formal and Informal Employment," The World Bank Economic Review, World Bank, vol. 28(3), pages 446-466.
    4. Peña, Ximena., 2013. "The formal and informal sectors in Colombia : country case study on labour market segmentation," ILO Working Papers 994820883402676, International Labour Organization.
    5. Edwin A. Goñi Pacchioni, 2013. "Andemic Informality: Assessing Labor Informality, Employment and Income Risk in the Andes," IDB Publications (Books), Inter-American Development Bank, number 82329 edited by Inter-American Development Bank (IDB), February.
    6. repec:idb:brikps:461 is not listed on IDEAS
    7. Goñi Pacchioni, Edwin A., 2013. "Andemic Informality: Assessing Labor Informality, Employment and Income Risk in the Andes," IDB Publications (Books), Inter-American Development Bank, number 461.
    8. Carla Canelas & Miguel Niño-Zarazúa, 2022. "Informality and Pension Reforms in Bolivia: The Case of Renta Dignidad," Journal of Development Studies, Taylor & Francis Journals, vol. 58(7), pages 1436-1458, July.
    9. Azuara, Oliver & Marinescu, Ioana, 2013. "Informality and the expansion of social protection programs: Evidence from Mexico," Journal of Health Economics, Elsevier, vol. 32(5), pages 938-950.
    10. Luis E. Arango & Luz A. Flórez, 2017. "Informalidad laboral y elementos para un salario mínimo diferencial por regiones en Colombia," Borradores de Economia 1023, Banco de la Republica de Colombia.
    11. David A. Hurtado & Philipp Hessel & Mauricio Avendano, 2017. "The hidden costs of informal work: lack of social protection and subjective well-being in Colombia," International Journal of Public Health, Springer;Swiss School of Public Health (SSPH+), vol. 62(2), pages 187-196, March.

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    More about this item

    Keywords

    informal sector; pensions; health insurance; social protection; Colombia;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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