From Severance Pay to Self-Insurance: Effects of Severance Payments Savings Accounts in Colombia

Adriana Kugler

No 434, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In 1990 Colombia replaced its traditional system of severance payments with a new system of severance payments savings accounts (SPSAs). Although severance payments often are justified on the grounds that they provide insurance against earnings loss, they also increase costs for employers and distort employment decisions. The impact of severance payments depends largely on how much of the costs to employers can be shifted to workers. The theoretical analysis in this paper shows that, in contrast to a traditional system of severance payments, the system of SPSAs facilitates the shifting of severance payments costs to workers in the form of lower wages. Empirical results using the Colombian National Household Surveys indicate that the introduction of SPSAs shifted around 80% of the total severance payments contributions to wages and had a positive effect on weekly hours. Results using the 1997 Colombian Living Standards Measurement Survey suggest that, although SPSAs in part replaced employer insurance with self-insurance, SPSAs continue to play a consumption smoothing role for the non-employed.

Keywords: consumption smoothing; unemployment insurance; tax shifting; Distortions; crowding out (search for similar items in EconPapers)
JEL-codes: E2 H2 J3 J6 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2002-02
New Economics Papers: this item is included in nep-lam and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published - published in: Journal of Public Economics, 005, 89 (2-3), 487-500.

Downloads: (external link)
https://docs.iza.org/dp434.pdf (application/pdf)

Related works:
Working Paper: From Severance Pay to Self-Insurance: Effects of Severance Payments Savings Accounts in Colombia (2002)
Working Paper: From severance pay to self-insurance: Effects of severance payments savings accounts in Colombia (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp434

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().