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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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File URL: http://mpra.ub.uni-muenchen.de/35073/1/MPRA_paper_35073.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35073.

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Date of creation: 01 Oct 2011
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Handle: RePEc:pra:mprapa:35073
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  1. Gary King & Emmanuela Gakidou & Nirmala Ravishankar & Ryan T. Moore & Jason Lakin & Manett Vargas & Martha Mar�a Téllez-Rojo & Juan Eugenio Hernández �vila & Mauricio Hernández �vila & Héctor Hernánde, 2007. "A “politically robust” experimental design for public policy evaluation, with application to the Mexican Universal Health Insurance program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(3), pages 479-506.
  2. Camacho, Adriana & Conover, Emily & Hoyos, Alejandro, 2013. "Effects of Colombia's social protection system on workers'choice between formal and informal employment," Policy Research Working Paper Series 6564, The World Bank.
  3. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
  4. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
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  6. Bosch, Mariano & Maloney, William F., 2007. "Gross Worker Flows in the Presence of Informal Labor Markets: Evidence from Mexico, 1987-2002," IZA Discussion Papers 2864, Institute for the Study of Labor (IZA).
  7. Jonathan Gruber & Brigitte C. Madrian, 2002. "Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature," NBER Working Papers 8817, National Bureau of Economic Research, Inc.
  8. Brigitte C. Madrian, 1993. "Employment-Based Health Insurance and Job Mobility: Is There Evidence ofJob-Lock?," NBER Working Papers 4476, National Bureau of Economic Research, Inc.
  9. Gerardo Esquivel Hernández & Juan Luis Ordaz-Díaz, 2008. "¿Es la política social una causa de la informalidad en México?," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 1-32, May.
  10. Arias, Javier & Azuara, Oliver & Bernal, Pedro & Heckman, James & Villarreal, Cajeme, 2010. "Policies to Promote Growth and Economic Efficiency in Mexico," MPRA Paper 20414, University Library of Munich, Germany.
  11. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  12. Omar Galárraga & Sandra Sosa-Rubí & Aarón Salinas-Rodríguez & Sergio Sesma-Vázquez, 2010. "Health insurance for the poor: impact on catastrophic and out-of-pocket health expenditures in Mexico," The European Journal of Health Economics, Springer, vol. 11(5), pages 437-447, October.
  13. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
  14. 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.
  15. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
  16. Heim, Bradley T. & Lurie, Ithai Z., 2010. "The effect of self-employed health insurance subsidies on self-employment," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 995-1007, December.
  17. Santiago Levy & Michael Walton, 2009. "No Growth without Equity? Inequality, Interests, and Competition in Mexico," World Bank Publications, The World Bank, number 13263.
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