This document provides an outline for a research proposal that will examine the labor market effects of mandatory benefit regulations for maids in Ecuador. The researcher will use a difference-in-difference methodology to analyze how mandatory social security enrollment for maids has impacted their labor market outcomes and coverage rates. They will also examine how the increased costs of maid services have impacted work decisions of female heads of households. The study will use employment survey data from Ecuador and may include a qualitative survey of maids. The expected results could provide insights into how social security policies impact vulnerable labor groups and lessons for the design of labor and social protection policies in developing countries.

1. Labor Market Effects of Mandatory
Benefit Regulations for Maids in
Ecuador
Sara A. Wong
A Research Proposal for the Japanese Award for Outstanding Research on Development
GDN Conference
Parallel Session 3.2. Auditorium D – Asian Development Bank
Manila, Philippines
June 20th, 2013
Financial support from Global Development Network (GDN) to participate in the 2013 GDN conference is gratefully acknowledged.

2. Outline
• Motivation
• Research questions
• Brief literature review
• Methodology
• Data
• Expected results & Policy implications

3. Motivation
• Maids: occupation with the lowest salaries and no
social security benefits.
• Government intervention:
– In 2008 , enforcement of employer (generally, head of
households) social security mandate.
– In January 2010, maids should receive no least than the
minimum wage.
• However, potential negative impacts on the intended
beneficiaries (maids).
• Spillover effects on female employers.
• Relevant to other developing countries/labor groups.

4. Figure 1
0
50,000
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200,000
250,000
300,000
0
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2005 2006 2007 2008 2009 2010 2011
Number
%
Without social insurance Maids
1,820,000
1,840,000
1,860,000
1,880,000
1,900,000
1,920,000
1,940,000
1,960,000
1,980,000
2,000,000
2,020,000
0
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2005 2006 2007 2008 2009 2010 2011
NUmber
%
Without social insurance Private employees
Share on social security affiliation and number of employees, 2005-2011
We want to test the prediction that the effects of the enforced employer social security
mandate “should be largest for low-wage, low-skill workers, who generally exhibit low rates
of coverage in a voluntary market.” (Buchmueller et al. 2011) and who are subject to wage
rigidities (such as maids).
Maids Other private sector employees

5. Research questions
• How have the employer mandated benefits and
social security enrollment for maids impacted
labor market outcomes and coverage?
• How has the increased cost of maid services
impacted work decisions of female heads of
households/wives?

6. Brief Literature Review
• Seminal theoretical work by Summers (1989):
– Employment effects may be affected by the value
that the recipients place on the social service they
may receive.
• Scarce empirical literature, main conclusion:
“…Mandated benefits increase labor costs and
reduce employment modestly… with some variation
among countries.” (Freeman 2009)
• Similar conclusions in IADB (2004) for Latin
American countries.

7. Employment
L3 L1 L0 = L2
E0
E1
E3
S
S
D
S
S
D
D
D
w
w0
w3
w1
Wages
L
Figure 2
The Effects of Mandated Benefits
Summers (1989) puts forward a framework to analyze the wage and employment
impacts of mandated benefits. In a nutshell, these effects can be analyzed using a
Supply and Demand for labor, as depicted in Figure 2.
E2

8. Methodology: outline
• Difference-in-difference (before and after)
– Treatment group
– Control group
• Identification strategy / Assumptions
• False experiments and robustness checks
• Qualitative analysis: A survey for maids?

9. Methodology: DID
• Difference-in-difference (DID) approach, before and after
the “treatment”.
– baseline period, 2004-2007 (no enforcement) and
– a subsequent period, 2009-2012 (coverage was enforced)
• For each of the periods the model is:
• Hypotheses (maids):
– COVERAGE
– LABOR MARKET OUTCOMES: w , employment (probabilities) , hours
𝑌𝑖𝑠𝑡 = 𝑋𝑖𝑠𝑡 𝛽 𝑡
+ 𝐻𝑖𝑡 𝛿 𝑡
+ 𝜑 𝑠𝑡 + ɳ 𝑖𝑡 (t = 0,1)
The difference-in-difference estimate of the effect of the enforced mandate is
given by the difference between the maids effect in the comparison and baseline
periods, or ∆= 𝛿1
− 𝛿0

10. Methodology: Identification/Assumptions
• Identification Strategy / Assumptions (key for inference)
– Discuss the proper “control” group.
– Disturbances are i.i.d. --> insufficiently conservative inference.
– “Clustering” framework --> inference relies on asymptotic
approximations associated with the assumption that the number of
individuals within an occupation grows large. Applicable to our
framework? If yes, conventional means test.
– If not, Fisher ramdomization test (as in Buchmueller et al. 2011.
See also Imbens and Wooldridge 2009).

11. Methodology: Robustness & False tests
• Assess the robustness of the social security coverage
results & provide falsification tests.
– E.g. use different periods to assess robustness of results.
– E.g. test using public employees (which already see high coverage)
so that we should not find a similar effect to the effect of the
government intervention for maids for government employees.

12. Methodology: Qualitative Analysis
• Evidence on value that maids place on being under social
security (Not done in other studies on mandated benefits)
– The amount of “tax” they are willing to pay for the benefits they
get under the mandated benefits
– The (scale) value they place on benefits they receive from social
security services
• Need to design proper survey sample and framework
• Suggestion: Interviews to a group of maids from a maids
association
– With invitation, to be surveyed in a meeting at the maids
association facilities

13. Data
• ENEMDU (by its acronym in Spanish), the survey on
employment, unemployment and
underemployment, collected by the National Institute of
Statistics and Census (INEC, by its acronym in Spanish).
• Own survey questionnaire/data.

14. Expected results & Policy implications
• Econometric estimates that provide labor market insights
significantly impacting a low-income, low-skill labor market
groups.
– Social security policies may have sizeable impacts on demand and/or supply of
labor of such workers
• Lessons on the limitations and achievements of a move
towards more comprehensive social policy.
- At least for certain most vulnerable group (maids, other similar workers)
• Implications for the design of labor market policies and social
protection policies.
– A need for complementary policies
• Lessons on the perils of the mandated benefits for maids
(and similar labor groups) for other developing countries.

15. References
• Bérgolo, M., and G. Cruces (2011), “Labor informality and the incentive effects of social
security: Evidence from a health reform in Uruguay.” CEDLAS.
• Buchmueller, T., J. DiNardo, and R. G. Valleta (2011), “The Effect of an Employer Health
Insurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidence
from Hawaii.” Federal Reserve Bank of San Francisco. Working Paper 2009-08. April
2011.
• Freeman, R. (2009), “Labor Regulations, Unions, and Social Protection in Developing
Countries: Market Distortions or Efficient Institutions?”. NBER Working Paper 14789.
March 2009.
• Grueber, J. and A. Krueger (1991), “The Incidence of Mandated Employer-Provided
Insurance: Lessons from Workers’ Compensation Insurance.” Tax Policy and the
Economy, Vol. 5 (1991), pp. 111-43.
• IADB (2004), “Good Jobs Wanted: Labor Markets in Latin America.” An Economic and
Social Progress Report by the Inter-American Development Bank.
• Imbens, G., and J. Wooldridge (2009), “Recent developments in the Econometrics of
Program Evaluation.”, Journal of Economic Literature 47(1): 5-86.
• Summer, L. (1989), “Some Simple Economics of Mandated Benefits,” The American
Economic Review, Vol. 79, No. 2, Papers and Proceedings of the Hundred and First
Annual Meeting of the American Economic Association. May 1989, pp. 177-83.

16. Thank you!
Comments welcome @
sawong@espol.edu.ec