Social Security Distortions onto the Labor Market : Estimates for Colombia
This paper identifies and quantifies three distortions caused by the existing social security and social assistance systems in Colombia. These distortions refer to the discrepancy between the cost of formal social security for the employer and the...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100729132151 http://hdl.handle.net/10986/3874 |
| Summary: | This paper identifies and quantifies
three distortions caused by the existing social security and
social assistance systems in Colombia. These distortions
refer to the discrepancy between the cost of formal social
security for the employer and the worker's valuation of
the received service (social distortion): the differences in
social security benefits received by salaried and
self-employed formal workers (occupational distortion); and
the discrepancy caused by the cost in employing a formal
instead of an informal worker (informal distortion). Based
on recently collected information concerning Colombian
workers' willingness to pay for several packages of
social security benefits, the study calculates that social
distortions range from 2 to 27 percent of the workers'
labor earnings; the occupational distortion amounts to 50
percent of formal salaried workers' earnings; and the
informal distortions represent between 45 and 56 percent of
formal workers' labor income. Results indicate that
valuations of the contributive and noncontributive
protection systems play a key role in explaining these
distortions. In addition, the Colombian social protection
system thereby places a hefty tax on the formal worker (and
employer) while transferring resources to the informal
worker, but these distortions are not sufficient to revert
differentials in earnings among formal and informal workers. |
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