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Labor Market Effects of Mandatory Benefit Regulations for Maids in Ecuador


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This presentation discusses the impact of mandatory social protection law on maids and female participation in the labour market.
Presentation by Sara Wong, Escuela Superior Politecnica del Litoral
GDN 14th Annual Conference
Manila, Philippines
June 19-21, 2013

Published in: News & Politics, Technology
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Labor Market Effects of Mandatory Benefit Regulations for Maids in Ecuador

  1. 1. Labor Market Effects of MandatoryBenefit Regulations for Maids inEcuadorSara A. WongA Research Proposal for the Japanese Award for Outstanding Research on DevelopmentGDN ConferenceParallel Session 3.2. Auditorium D – Asian Development BankManila, PhilippinesJune 20th, 2013Financial support from Global Development Network (GDN) to participate in the 2013 GDN conference is gratefully acknowledged.
  2. 2. Outline• Motivation• Research questions• Brief literature review• Methodology• Data• Expected results & Policy implications
  3. 3. Motivation• Maids: occupation with the lowest salaries and nosocial security benefits.• Government intervention:– In 2008 , enforcement of employer (generally, head ofhouseholds) social security mandate.– In January 2010, maids should receive no least than theminimum wage.• However, potential negative impacts on the intendedbeneficiaries (maids).• Spillover effects on female employers.• Relevant to other developing countries/labor groups.
  4. 4. Figure 1050,000100,000150,000200,000250,000300,00001020304050607080901002005 2006 2007 2008 2009 2010 2011Number%Without social insurance Maids1,820,0001,840,0001,860,0001,880,0001,900,0001,920,0001,940,0001,960,0001,980,0002,000,0002,020,00001020304050607080901002005 2006 2007 2008 2009 2010 2011NUmber%Without social insurance Private employeesShare on social security affiliation and number of employees, 2005-2011We want to test the prediction that the effects of the enforced employer social securitymandate “should be largest for low-wage, low-skill workers, who generally exhibit low ratesof coverage in a voluntary market.” (Buchmueller et al. 2011) and who are subject to wagerigidities (such as maids).Maids Other private sector employees
  5. 5. Research questions• How have the employer mandated benefits andsocial security enrollment for maids impactedlabor market outcomes and coverage?• How has the increased cost of maid servicesimpacted work decisions of female heads ofhouseholds/wives?
  6. 6. Brief Literature Review• Seminal theoretical work by Summers (1989):– Employment effects may be affected by the valuethat the recipients place on the social service theymay receive.• Scarce empirical literature, main conclusion:“…Mandated benefits increase labor costs andreduce employment modestly… with some variationamong countries.” (Freeman 2009)• Similar conclusions in IADB (2004) for LatinAmerican countries.
  7. 7. EmploymentL3 L1 L0 = L2E0E1E3SSDSSDDDww0w3w1WagesLFigure 2The Effects of Mandated BenefitsSummers (1989) puts forward a framework to analyze the wage and employmentimpacts of mandated benefits. In a nutshell, these effects can be analyzed using aSupply and Demand for labor, as depicted in Figure 2.E2
  8. 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. 9. Methodology: DID• Difference-in-difference (DID) approach, before and afterthe “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) , hours𝑌𝑖𝑠𝑡 = 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 isgiven by the difference between the maids effect in the comparison and baselineperiods, or ∆= 𝛿1− 𝛿0
  10. 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 asymptoticapproximations associated with the assumption that the number ofindividuals within an occupation grows large. Applicable to ourframework? If yes, conventional means test.– If not, Fisher ramdomization test (as in Buchmueller et al. 2011.See also Imbens and Wooldridge 2009).
  11. 11. Methodology: Robustness & False tests• Assess the robustness of the social security coverageresults & 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 thegovernment intervention for maids for government employees.
  12. 12. Methodology: Qualitative Analysis• Evidence on value that maids place on being under socialsecurity (Not done in other studies on mandated benefits)– The amount of “tax” they are willing to pay for the benefits theyget under the mandated benefits– The (scale) value they place on benefits they receive from socialsecurity services• Need to design proper survey sample and framework• Suggestion: Interviews to a group of maids from a maidsassociation– With invitation, to be surveyed in a meeting at the maidsassociation facilities
  13. 13. Data• ENEMDU (by its acronym in Spanish), the survey onemployment, unemployment andunderemployment, collected by the National Institute ofStatistics and Census (INEC, by its acronym in Spanish).• Own survey questionnaire/data.
  14. 14. Expected results & Policy implications• Econometric estimates that provide labor market insightssignificantly impacting a low-income, low-skill labor marketgroups.– Social security policies may have sizeable impacts on demand and/or supply oflabor of such workers• Lessons on the limitations and achievements of a movetowards more comprehensive social policy.- At least for certain most vulnerable group (maids, other similar workers)• Implications for the design of labor market policies and socialprotection 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. 15. References• Bérgolo, M., and G. Cruces (2011), “Labor informality and the incentive effects of socialsecurity: Evidence from a health reform in Uruguay.” CEDLAS.• Buchmueller, T., J. DiNardo, and R. G. Valleta (2011), “The Effect of an Employer HealthInsurance Mandate on Health Insurance Coverage and the Demand for Labor: Evidencefrom Hawaii.” Federal Reserve Bank of San Francisco. Working Paper 2009-08. April2011.• Freeman, R. (2009), “Labor Regulations, Unions, and Social Protection in DevelopingCountries: Market Distortions or Efficient Institutions?”. NBER Working Paper 14789.March 2009.• Grueber, J. and A. Krueger (1991), “The Incidence of Mandated Employer-ProvidedInsurance: Lessons from Workers’ Compensation Insurance.” Tax Policy and theEconomy, Vol. 5 (1991), pp. 111-43.• IADB (2004), “Good Jobs Wanted: Labor Markets in Latin America.” An Economic andSocial Progress Report by the Inter-American Development Bank.• Imbens, G., and J. Wooldridge (2009), “Recent developments in the Econometrics ofProgram Evaluation.”, Journal of Economic Literature 47(1): 5-86.• Summer, L. (1989), “Some Simple Economics of Mandated Benefits,” The AmericanEconomic Review, Vol. 79, No. 2, Papers and Proceedings of the Hundred and FirstAnnual Meeting of the American Economic Association. May 1989, pp. 177-83.
  16. 16. Thank you!Comments welcome