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Informality and the expansion of social protection programs

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  • Azuara, Oliver
  • Marinescu, Ioana

Abstract

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.

Suggested Citation

  • 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

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    Cited by:

    1. Azuara, Oliver, 2011. "Effect of universal health coverage on marriage, cohabitation and labor force participation," MPRA Paper 35074, University Library of Munich, Germany.
    2. 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, CIDE, División de Economía, vol. 0(2), pages 403-448, July-Dece.
    3. Hoyt Bleakley & Bhanu Gupta, 2023. "Mind the Gap: Schooling, Informality, and Fiscal Externalities in Nepal," The World Bank Economic Review, World Bank, vol. 37(4), pages 659-674.
    4. 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.
    5. Aterido, Reyes & Hallward-Driemeier, Mary & Pagés, Carmen, 2011. "Does Expanding Health Insurance Beyond Formal-Sector Workers Encourage Informality?: Measuring the Impact of Mexico's Seguro Popular," IDB Publications (Working Papers) 4551, Inter-American Development Bank.
    6. 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.
    7. 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.
    8. Matteo Bobba & Luca Flabbi & Santiago Levy, 2022. "Labor Market Search, Informality, And Schooling Investments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 211-259, February.
    9. François Gerard & Gustavo Gonzaga, 2013. "Informal Labor and the Cost of Social Programs: Evidence from 15 Years of Unemployment Insurance in Brazil," Textos para discussão 608, Department of Economics PUC-Rio (Brazil).
    10. 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.
    11. François Gerard & Gustavo Gonzaga, 2011. "Unemployment Insurance in Developing Countries: The Case of Brazil," Textos para discussão 593, Department of Economics PUC-Rio (Brazil).
    12. 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.
    13. 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," Working Papers halshs-00838000, HAL.
    14. Ana Isabel Lopez Garcia, 2016. "State Healthcare and the Impact of Remittances on Turnout in Mexico," Remittances Review, Remittances Review, vol. 1(1), pages 65-104, October.

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    More about this item

    Keywords

    Informality; Social Protection; Labor; Health; Seguro Popular; Oportunidades; Mexico;
    All these keywords.

    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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