The Impact of Colombia's Pension and Health Insurance Systems on Informality

Valentina Calderón-Mejía () and Ioana Marinescu
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Valentina Calderón-Mejía: University of Chicago
Authors registered in the RePEc Author Service: Valentina Calderón Mejía ()

No 6439, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Social protection systems in developing countries are typically composed of a bundle of benefits, the major ones being health insurance and pensions. Benefit bundling may increase informality and decrease welfare. Indeed, if some of the benefits are valued at substantially less than their cost, workers may choose to forego all benefits, even though some other benefits are valued at or above their cost. We examine the impact of benefit bundling using a series of Colombian reforms. The key reform is the unification of the payment systems for health and pension, which made it more difficult to contribute differently to the one plan versus the other. Using the progressive roll-out of the unified payment system by firm size, we show that benefit bundling increases both full formality and full informality by about 1 percentage point. The increase in full formality is concentrated among salaried workers in small to medium firms, while the increase in full informality is concentrated among independent workers.

Keywords: informal sector; pensions; health insurance; social protection; Colombia (search for similar items in EconPapers)
JEL-codes: I11 I18 O17 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2012-03
New Economics Papers: this item is included in nep-age, nep-hea, nep-ias and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: The Impact of Colombia's Pension and Health Insurance Systems on Informality (2011)
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