From severance pay to self-insurance: Effects of severance payments savings accounts in Colombia

Adriana Kugler

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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: Distortions; tax shifting; unemployment insurance; consumption smoothing; crowding out (search for similar items in EconPapers)
JEL-codes: E2 H2 J3 J6 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-ias and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://econ-papers.upf.edu/papers/592.pdf Whole Paper (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 (2002)
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:upf:upfgen:592

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).