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The trade-offs of social assistance programs in the labor market: The case of the “Seguro Popular” program in Mexico

By Mariano Bosch and Raymundo M. Campos-Vázquez

Abstract

In 2002, the Mexican government began a tremendous financial effort to provide health insurance, Seguro Popular (SP), to the 50 million uninsured in Mexico. In doing so, the states and municipalities offered virtually free health insurance to uncovered self-employed and informal salaried workers substantially altering the incentives for workers and firms to operate in the formal economy. We take advantage of the staggered implementation of the program across municipalities to estimate the effects of the SP in the labor market. We find that the SP had a negative effect in the creation of formal jobs, especially in small and medium sized firms. According to our estimates, had the program not been in place, 31.000 more employers and 300.000 new formal jobs should have been registered with Mexican social security. These represent 3.8% and 2.4% of the stock of registered employers and employees in 2002 when the program started.social assistance program, informality, labor market, Mexico

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