Formalizing the Labor Market
The coverage of social security in Mexico has not grown for more than two and a half decades. Half of the population or more does not have health insurance nor is on track to receive a pension provided by social security. The government has reacted through enactment of noncontributory programs. Widening social programs is dependent upon fiscal revenues; yet, Mexico has lower levels of revenues and coverage than Brazil, Argentina, Uruguay, and Costa Rica. We find that the increase in coverage of social security can take a very long time due to social segmentation, and that the problem is concentrated in micro-firms, where only 7 percent of workers have social security. While the business cycle cannot explain low levels of coverage, the Great Recession affected low-income households more. Tax policy has evolved towards increasing taxes on labor, but the government has vowed to press on with an agenda of universal social insurance.
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