Social Insurance, Informality, and Labor Markets: How to Protect Workers While Creating Good Jobs

Most countries implement social protection programs to help individuals manage risks such as unemployment, disability, illness, longevity or death. In many middle income countries, these are often based on a 'Bismarckian model' (named after Otto von Bismarck), where benefits are financed by contributions levied on salaried employment. In countries with a large informal sector, however, only a fraction of the population is covered by this system and non-contributory programs have been added or are planned to increase coverage. This can create distortions in the labor market, and the book is about policies to expand the coverage of social insurance programs to all workers, without reducing incentives to job creation and formal work. While few would argue against the need and social merits of social insurance and social assistance programs there are growing concerns about their unintended consequences on labor markets because of poor design. The programs can distort incentives and individual behaviors in ways that either reduce employment levels and/or promote informality, ultimately affecting productivity and economic performance. For instance, high social security contribution rates can reduce formal employment; badly designed unemployment benefits can reduce incentives to keep, search, and take jobs; and fragmented social assistance programs can become a tax on formal labor and encourage informality. The book reviews the evidence regarding the effects of social insurance and social assistance programs on labor market outcomes and discusses options to improve their design and implementation. The book focuses particularly on middle income countries in Latin America and Asia with a large informal sector and suggests ways to reduce these distortions and better manage and finance the subsidies to make coverage universal, while creating good jobs. The book compiles expert papers from the joint conferences of the World Bank (WB), the Institute for the Study of Labor (IZA) and the Inter-American Development Bank (IDB) on Employment and Development. Contributors to this volume - Pablo Acosta, The World Bank, IZA Arturo Anton-Sarabia, Centro de Investigacion y Docencia Economicas, Mexico Orazio Attanasio, University College London Marcelo Bergolo, National University de La Plata, Argentine Richard Bird, University of Toronto Mariano Bosch, Inter-American Development Bank Jose Marcio Camargo, Catholic University Rio de Janeiro Ana Belen Cobacho, Technical University of Cartagena Guillermo Cruces, National University de La Plata, Argentine, IZA Miguel Foguel, Institute for Applied Economic Research, Brasil Alvaro Forteza, University de la Republica, Uruguay Markus Frolich, University of Mannheim, IZA Robert Gillingham, Economics Consultant Fausto Hernandez, Centro de Investigacion y Docencia Economicas, Mexico Robert Holzmann, University of Vienna, The World Bank, IZA Sergi Jimenez-Martin, University Pompeu Fabry Alain Jousten, University of Liege, IZA David Kaplan, Inter-American Development Bank, IZA Phillippe Leite, The World Bank Santiago Levy, Inter-American Development Bank, IZA David Margolis, University of Paris 1, IZA Costas Meghir, Yale University, IZA Lucas Navarro, University Alberto Hurtado, Colombia Carmen Pages, Inter-American Development Bank, IZA Jamele Rigolini, The World Bank, IZA David Robalino, The World Bank, IZA Alfonso Sanchez Martin, University Pablo de Olavide Michael Smart, University of Toronto