When Formality Is Costly and Informality Is Legal: Social Insurance Design Woes at A Time of Economic Crises

Irene Selwaness () and Ghada Barsoum ()
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Irene Selwaness: Cairo University
Ghada Barsoum: AUC

No 1661, Working Papers from Economic Research Forum

Abstract: This paper examines the extent to which the institutional framework for social insurance (SI) might constrain access to contributory schemes and explain workers’ coverage gaps. We use nationally representative microdata from Egypt to test how the design leads to the exclusion of specific categories of workers. We show that the legal framework for SI allows certain types of workers (the self-employed and employers in unregistered enterprises) to opt out of the SI system, thus legalizing and legitimating employment informality. Although the law explicitly highlights the objective of including informal workers, the difficulty of the required documentation and the focus on specific occupations show that it fails to recognize the diversity of this group. Our findings also show that the lack of SI coverage happened even among workers who should be covered by law, i.e., regular wage workers, due to the substantial increases in the minimum insurable wage upon which contributions are calculated, rendering the scheme less attractive for both employers and employees. The paper demonstrates that the conditions of enrollment, cost, and benefit design for SI schemes disincentivize both employers and employees from contributing to the system

Pages: 51
Date: 2023-11-20, Revised 2023-11-20
New Economics Papers: this item is included in nep-ara, nep-des and nep-iue
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