THE EFFECTS OF SOCIAL PROTECTION PROGRAMS ON THE LABOUR MARKET: EVIDENCE FROM THE ESTABLISHMENT OF SEGURO POPULAR IN MEXICO (2002-2005)

A high informality incidence, measured as the share of informal employment out of total employment, is a common characteristic of most developing countries’ economies. In Mexico, where informal employment accounts for the majority of labour activity, this is argued to be a consequence of its unique social policy. The introduction of the social protection program for health in 2002, Seguro Popular, has been blamed to draw workers out of formality into informality by providing them with free health care, an alternative to paying for health through social security. By using a difference-in-difference method this thesis exploits the gradual phase-in of the program in Mexico’s states to see whether Seguro Popular indeed had an effect on informality. It can be observed that overall informality increased over the time period studied but that this was not specifically the case for states which adopted the program. When segregating per sex, the effects seem to be more present for male than female workers, but overall this research finds no proof of a significant relationship between the introduction of Seguro Popular and the degree of informality among Mexico’s states