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Informality and the expansion of social protection programs


  • Azuara, Oliver
  • Marinescu, Ioana


This paper examines the impact of the expansion of social protection programs on informality using the case of Mexico. A social protection system based on two components was created during the last decade in the country. The first is Seguro Popular which provides a minimum set of health benefits to the population not covered by formal social security. The other component of the system is a conditional cash transfer called Oportunidades. Both theoretically affect incentives to work in the informal sector. Seguro Popular decreases the cost of working informally and Oportunidades increases the benefits of concealing income by working informally. Using the fact that both systems were introduced in different municipalities at different times, we show that, surprisingly, neither significantly affected overall informality. While informality significantly increased for some sub-groups after the introduction of Seguro Popular, the increase was less than 2 percentage points. We also find no effect of Seguro Popular on transitions between formal and informal jobs, and no effect on wage differentials between the formal and the informal sector. These results suggest that payroll financed health insurance does not affect wages or labor mobility in Mexico. Overall, Mexico’s expansion of social protection system came at little to no cost in terms of labor supply distortions.

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  • Azuara, Oliver & Marinescu, Ioana, 2011. "Informality and the expansion of social protection programs," MPRA Paper 35073, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35073

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    References listed on IDEAS

    1. Mariano Bosch & Raymundo M. Campos-Vázquez, 2010. "The trade-offs of social assistance programs in the labor market: The case of the “Seguro Popular” program in Mexico," Serie documentos de trabajo del Centro de Estudios Económicos 2010-12, El Colegio de México, Centro de Estudios Económicos.
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    3. Arias-Vazquez, Francisco Javier & Azuara, Oliver & Bernal, Pedro & Heckman, James J. & Villarreal, Cajeme, 2010. "Policies to Promote Growth and Economic Efficiency in Mexico," IZA Discussion Papers 4740, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Aterido, Reyes & Hallward-Driemeier, Mary & Pages, Carmen, 2011. "Does expanding health insurance beyond formal-sector workers encourage informality ? measuring the impact of Mexico's Seguro Popular," Policy Research Working Paper Series 5785, The World Bank.
    2. Azuara, Oliver, 2011. "Effect of universal health coverage on marriage, cohabitation and labor force participation," MPRA Paper 35074, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. David Lagakos, 2016. "Explaining Cross-Country Productivity Differences in Retail Trade," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 579-620.
    6. Bobba, Matteo & Flabbi, Luca & Levy Algazi, Santiago, 2017. "Labor Market Search, Informality and Schooling Investments," IZA Discussion Papers 11170, Institute for the Study of Labor (IZA).
    7. Bosch, Mariano & Manacorda, Marco, 2012. "Social policies and labor market outcomes in Latin America and the Caribbean: a review of the existing evidence," LSE Research Online Documents on Economics 58003, London School of Economics and Political Science, LSE Library.
    8. Javier Arias & Oliver Azuara & Pedro Bernal & James J. Heckman & Cajeme Villarreal, 2010. "Policies To Promote Growth and Economic Efficiency in Mexico," NBER Working Papers 16554, National Bureau of Economic Research, Inc.
    9. Alejandro Del Valle, 2013. "Is Formal Employment Discouraged by the Provision of Free. Health Services to the Uninsured ? Evidence From a Natural Experiment in Mexico," PSE Working Papers halshs-00838000, HAL.

    More about this item


    Informality; Social Protection; Labor; Health; Seguro Popular; Oportunidades; Mexico;

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy

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