Social Insurance, Informality, and Labor Markets · How to Protect Workers While Creating Good Jobs by Fröhlich, Markus -- Read -- Imperial Library of Trantor

Index

Cover Social Insurance, Informality, and Labor Markets: How to Protect Workers While Creating Good Jobs Copyright Contents List of Figures List of Tables Preface*

Assessing the Effects of Social Insurance on Labor Markets Setting the Mandate of the Insurance Programs and Designing Redistributive Arrangements Financing a Universal Social Insurance System Conclusions

Have more Flexibility When Setting the Mandate, or Bundle of Benefits, of Social Insurance Programs Reduce Tax-wedges

1: Social Insurance, Informality, and Labor Markets: How to Protect Workers While Creating Good Jobs

1.1. Introduction 1.2. Conceptualizing the Links Between Social Insurance and the Labor Market 1.3. Assessing the Effects of Social Insurance on Labor Markets 1.4. Setting the Mandate of the Insurance Programs

1.4.1. Defining the Mandate of the Social Insurance System 1.4.2. Designing Redistributive Arrangements

1.5. Financing a Universal Social Insurance System 1.6. Concluding Remarks Notes References

Part I: Assessing the Effects of Social Insurance on Labor Markets

2: The Evolution of Social Security Systems in Latin America*

2.1. Introduction 2.2. The Bismarckian Vision of Social Security 2.3. When Did Latin America Adopt the Bismarckian Model? 2.4. A Comparison Between Social Security Policy and Education Policy 2.5. The Beveridge Model of Social Security 2.6. Why Did Latin America Adopt the Bismarckian Model? 2.7. The Expected Expansion of Coverage Never Materialized 2.8. Why Has Informality Been So Persistent? 2.9. The Movement Towards Parallel Non-Contributory Programs 2.10. The Result of a Long Historical Process is a Poorly Designed Patchwork System of Social Security 2.11. An Alternative Social Security Model Can Be Implemented 2.12. Conclusions Notes References

3: Labor Informality and the Incentive Effects of Social Protection Systems: Evidence from a Health Reform in Uruguay*

3.1. Introduction 3.2. The Social Protection System in Uruguay 3.3. The Health Reform and its Labor Market Incentive Effects

3.3.1. The 2008 Health Reform 3.3.2. Health Insurance Expansion and Incentives for Formal-Sector Employment

3.4. Data and Identification Strategy

3.4.1. Data 3.4.2. Identification Strategy

3.5. Empirical Results: Incentive Effects and the Health Reform in Uruguay

3.5.1. Effects at the Individual Level 3.5.2. The Impact of Health Reform on Intra-Household Labor Arrangements

3.6. Conclusions and Policy Discussion Notes References

4: Effects of Non-Contributory Systems on Informality: Taking Stock of Eight Years of Implementation of Mexico’s Seguro Popular*

4.1. Introduction 4.2. The Reform 4.3. Implementation of, and Affiliation to, Seguro Popular 4.4. Direct Effect of Seguro Popular on Health Services Provision and Health Outcomes 4.5. Unintended Effects of Seguro Popular on the Labor Market 4.6. Discussion and Conclusions Notes References

5: Unemployment Insurance, Job Search, and Informal Employment*

5.1. Introduction 5.2. Overview of Current Malaysian Labor Markets 5.3. The Model Framework

5.3.1. Unemployment Value Function 5.3.2. Self-Employment Value Function 5.3.3. Wage and Salary Sector Value Functions 5.3.4. Employer-Side Value Functions 5.3.5. Wages

5.4. The Data

5.4.1. The Household Income Survey (2009) 5.4.2. The Labor Force Survey with the Wages and Salaries Supplement (2009)

5.5. Estimation

5.5.1. Direct Recovery of Parameters and Population Moments 5.5.2. Recovery of y for All Sampled Individuals 5.5.3. Estimation of the Distributions of Sector-Specific Productivity Draws GI (x|y) and GF (x|y) 5.5.4. Recovery of the Remaining Parameters by Simulated Pseudo Method of Moments

5.6. Microsimulations of Policy Experiments 5.7. Conclusion Appendix A: Basic Structure of the Model Appendix B: Regression Results Appendix C: Simulation Results Notes References

6: Does Formal Work Pay? The Role of Labor Taxation and Social Benefit Design in the New Member States*

6.1. Introduction 6.2. Measurements of Informality and Disincentives for Formal Work

6.2.1. Definition of Informal Employment 6.2.2. The Comparison Between Formal and Informal Employment 6.2.3. Labor Taxation: The Tax-Wedge 6.2.4. Social Benefits 6.2.5. The Formalization Tax Rate 6.2.6. The Marginal Effective Tax Rate

6.3. Do Disincentives for Formal Work Matter?

6.3.1. Data 6.3.2. Descriptive Statistics 6.3.3. Econometric Analysis 6.3.4. Expected Results 6.3.5. Results

6.4. Conclusions and Policy Implications Notes References

Part II: Setting the Mandate of the Insurance Programs and Designing Redistributive Arrangements

7: Participation in Mandated and Voluntary Social Risk Management Arrangements: The Role and Limits of Financial Education and Other Interventions*

7.1. Introduction: Background, Motivation, and Structure 7.2. The Role and Limits of Information/Capability to Foster Individual Self-Provision and Reduce the Need for Compulsion

7.2.1. Key Reasons for Non-Participation in Voluntary Market-Based and/or Mandated Social Risk Management Arrangements

7.2.1.1. Supply Side Issues 7.2.1.2. Demand Side Issues

Constraints Due to Products and Systems Information Limitations Constraints Due to Limitations in Knowledge, Skills, and Attitude Constraints Due to Behavioral Limitations

7.2.2. Are More Information and Better Financial Education Always Beneficial to Higher Participation?

7.2.2.1. In an (Almost) Full Information Economy with Utility Maximizing Individuals 7.2.2.2. In an Asymmetric Information Economy with Utility Maximizing Individuals 7.2.2.3. In an Incomplete Information Economy with Rational/Bounded-Rational Individuals

7.3. The Role and Limits of Financial Literacy/Capability

7.3.1. Main Content Domains of Financial Literacy/Capability to Improve the Use of Social Risk Management Instruments 7.3.2. Conceptualizing and Measuring Financial Literacy/Capability

7.3.2.1. Conceptualizing Financial Literacy/Capability

The Normative/Cognitive Approach The Positive/Agnostic Approach

7.3.2.2. Measuring Financial Literacy/Capability Across Time and Space 7.3.2.3. Measuring Financial Literacy/Capability Around the World

7.4. The Role and Limits of Financial Education and Other Interventions

7.4.1. Does Financial Education Work in General and for Social Risk Management Use? 7.4.2. What are Promising Alternatives to Influence Behavior in General and for Social Risk Management Use?

7.4.2.1. Nudging 7.4.2.2. Advocacy

7.5. Conclusions Notes References

8: Labor Income and the Design of Default Portfolios in Mandatory Pension Systems: An Application to Chile*

8.1. Introduction 8.2. A Model of Life-Cycle Behavior

8.2.1. Recursive Formulation of the Problem

8.3. Calibration of the Illustrative Examples 8.4. Results

8.4.1. The Benchmark Individual 8.4.2. Welfare Analysis 8.4.3. Simulation Results for Alternative Types of Individuals

8.4.3.1. Female Wage Earners 8.4.3.2. Public Workers 8.4.3.3. High Education 8.4.3.4. Employers

8.5. Conclusions Appendix A: The Details of the Model

A Labor Income, Asset Allocation and Portfolio Defaults

B Life-Cycle Problem

B1 Bellman Equation (Active Worker) B2 Theoretical Solutions B3 Numerical Solution Method B4 Properties of the Solutions

C Sensitivity Analysis

Appendix B: The Chilean Pension System

A Retirement Accounts, Portfolio Choice, and Portfolio Defaults B Pension Benefits and Retirement Age C Minimum and Maximum Pensions D Pension Assets Risk and Returns

Notes References

9: Assessing Redistribution within Social Insurance Systems: The Cases of Argentina, Brazil, Chile, Mexico, and Uruguay*

9.1. Introduction 9.2. The Old-Age Pension and Unemployment Insurance Programs 9.3. Conceptual Framework 9.4. Data

9.4.1. Argentinean Data 9.4.2. Brazilian Data 9.4.3. Chilean Data 9.4.4. Mexican Data 9.4.5. Uruguayan Data

9.5. Methods

9.5.1. Labor Income and Labor Status Models 9.5.2. Computation of Social Security Contributions and Benefits 9.5.3. Computation of Pre- and Post-Social Security Lifetime Income 9.5.4. Computation of Income Distribution Indexes

9.6. Results 9.7. Concluding Remarks Notes References

10: The Design of a Multi-Tier Contributory Pension System: The Distributional Impact of the 2008 Chilean Pension Reform*

10.1. Introduction 10.2. The Chilean Pension System and Its Reform

10.2.1. The System in 2008 10.2.2. Description of the 2008 Reform

10.3. Data 10.4. Methodology

10.4.1. Forecasting the Components Pensions and Pension Wealth

10.4.1.1. Wages and Labor Supply 10.4.1.2. Child Subsidies 10.4.1.3. Compensation Upon Divorce 10.4.1.4. Survivor Pension 10.4.1.5. Disability Insurance

10.4.2. Forecasting Individual Pensions and Pension Wealth

10.5. Results

10.5.1. Accrual Rates and Average Pension Wealth 10.5.2. Changes in the Accumulated Pension Wealth Before and After theReform 10.5.3. Changes in the Distribution of Pensions Resulting from the Reform 10.5.4. Changes in the Distribution of the Pension Difference Between Men and Women 10.5.5. Changes in Pensions and Pension Wealth Inequality 10.5.6. Changes in Poverty Levels Before and After the Reform for Elderly People, in Particular, for Elderly Women

10.6. Conclusions Appendix A: Tables

A Children Profiles B Divorce Profiles C Outcomes of Interest

Appendix B: Assumptions Appendix C: Other Components Introduced by the Reform Appendix D: Computing Pension Entitlements Notes References

11: Should Cash Transfers Be Confined to the Poor? Implications for Poverty and Inequality in Latin America*

11.1. Introduction 11.2. The Cash and Targeting Revolutions 11.3. Data and Methodology 11.4. Results

11.4.1. Children 11.4.2. Elderly 11.4.3. Cost-Effectiveness of Categorical vs. Targeted Programs 11.4.4. Imperfect Targeting and Administrative Costs 11.4.5. Relative Targeting 11.4.6. Alternative Age Groups 11.4.7. Geographic Targeting

11.5. Conclusions Appendix Notes References

Part III: Financing Social Insurance Programs

12: Labor Market Institutions and Informality in Transition and Latin American Countries*

12.1. Introduction 12.2. Using a Broad Definition of Informality 12.3. The Impact of Policies to Lower Labor Costs andto Reduce Regulation

12.3.1. A Partial Equilibrium Model of Lowering Labor Costs to Employers 12.3.2. Empirical Evidence on the Effects of Lowering Labor Costs to Employers 12.3.3. Labor Supply Effects of Lowering the Tax-Wedge 12.3.4. Labor Market Regulation and Informality

12.4. Taxation and Informality within the Formal Sector 12.5. Empirical Analysis with Macro Data

12.5.1. Data Sources and Descriptive Statistics

12.5.1.1. Data Sources 12.5.1.2. Descriptive Statistics

12.5.2. Methodology 12.5.3. Empirical Results

12.6. Conclusions Appendix – IZA-World Bank Panel Data Base Notes References

13: Financing Social Expenditures in Developing Countries: Payroll or Value-Added Taxes?

13.1. Introduction 13.2. Financing SI in Latin America

13.2.1. Current Concerns 13.2.2. Economic Aspects of Payroll Taxation

13.2.2.1. Statutory Incidence 13.2.2.2. Payroll Taxes as Benefit Taxes 13.2.2.3. Informality

13.3. The Choice of Tax Base

13.3.1. Payroll Taxes and VAT: The Policy Landscape 13.3.2. A Conceptual Framework

13.4. A Formal Model

13.4.1. Tax Incidence Without Informality

13.4.1.1. Equal Tax Rate Comparisons

13.4.2. The Informal Sector

13.4.2.1. Comparing Tax Systems 13.4.2.2. Is VAT More Efficient Than Payroll Taxation?

13.4.3. Discussion

13.5. Concluding Remarks Notes References

14: Financing Universal Social Security in Mexico*

14.1. Introduction 14.2. Current Social Insurance and Tax Policy vs. USI

14.2.1. Current Social Insurance vs. USI 14.2.2. Current Tax Policy vs. USI

14.3. The Model 14.4. Taking the Model to the Data 14.5. Is the New Scheme Financially Sound? 14.6. Conclusions Notes References

15: Alternative Ways of Pricing and Financing Social Insurance*

15.1. Introduction 15.2. Current Social Insurance and Tax Structures

15.2.1. Social Insurance Financing 15.2.2. Income Taxes and VAT

15.3. Problems with Payroll Financing of Social Insurance

15.3.1. Background 15.3.2. Sources of Social Insurance Pricing Problems

15.3.2.1. Inadequate Rate of Return 15.3.2.2. Conflicts with Social Assistance Programs

15.4. How Can Pricing Issues Be Addressed?

15.4.1. Tie Benefits More Closely to Contributions 15.4.2. Increase the Rate of Return on Pension Saving 15.4.3. Coordinate Social Insurance with Social Assistance 15.4.4. Make Social Insurance a “Menu” 15.4.5. Summary

15.5. Implications for Informality 15.6. Implications for Financing Social Insurance Appendix A: Defining the Structure of a Social Insurance Program Appendix B: (Notional) Defined-Contribution vs. Defined-Benefit Systems Appendix C: Financial Market Rates of Return

A Intercohort Risk Sharing B How Persistent is the Current Downturn in Equity Markets Likely to Be?

Notes References

Notes on Editors and Authors Index

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