Asistencia social e informalidad: analizando la relacion en Colombia.

• Author: Saavedra-Caballero, Fabiola
• Position: Texto en ingles
• Pages: 81(40)

Social Assistance and Informality: Examining the Link in Colombia

Assistencia social e informalidade: analisando a relacao na Colombia

Introduction

The effects of conditional cash transfers --CCTs-- have been widely studied, with a special focus on developing and middle income countries. Rawlings and Rubio (2003) and Fiszbein et al. (2009) provide a wide review of CCTs' effects over different outcomes, such as poverty, education and health. Latin America is recognized as the starting point of CCT programs with Mexico's Progresa in 1997 (later called Oportunidades), which was subsequently used as a model to expand CCTs to countries such as Brazil with "Bolsa Escola" and "Bolsa Familia", Peru with "Juntos" and Colombia with "Familias en Accion". Although the effects of the CCT programs over different outcomes have been widely analyzed, there is still mixed evidence regarding the effects of CCTs on labor supply decisions and specifically in informality. Some studies report findings with different magnitudes (Fiszbein et al., 2009; Levy, 2008; Gasparini, Haimovich & Olivieri, 2009; Camacho, Conover & Hoyos, 2013), and others do not even find significant evidence (Filmer & Schady, 2014 Urdinola, Haimovich & Robayo, 2009; Edmonds & Schady, 2008; Skoufias & Di Maro, 2006).

The concern about this topic generally focuses on the eligibility criteria of CCTs that may generate perverse incentives for CCT programs' beneficiaries to move out of the labor force or towards informality. While the eligibility criteria of a CCT program may not explicitly rule out people working in the formal sector, being a beneficiary from "Familias en Accion" may increase the probability to move towards the informal sector, since having a job in the formal sector increases individual income, reducing the probability of being eligible to be a beneficiary of the program. Our hypothesis is that benefits from social protection programs make individuals likely to maintain the features that benefit them and make them selectable for social benefits, such as a "registered" low income or being non-salaried (informal employment).

To test our hypothesis, we use evaluation data of the Colombian social assistance program "Familias en Accion". This dataset contains information at the household and individual levels of beneficiaries before the execution of the program and for one and four years after its implementation. Regarding our empirical strategy, to overcome the problem of unobserved time-invariant differences, we applied a combination of matching algorithms and difference-in-differences techniques. Our results show that a worker's informality condition may be affected by receiving CCT income.

We attempt to contribute to the existing literature to design more appropriate CCT policies, especially in Latin America and the Caribbean. Therefore, this research has three distinctive features. First, given that the previous conclusions are mixed, we test our hypothesis by including three different perspectives of informality to achieve more conclusive results. Second, we use a very complete dataset from the Familias en Accion program that allows us to confidently apply quasi-experimental techniques to precisely determine the effects of social programs over the propensity towards informality. Third, our dataset allows us to compare the effects of a CCT program over time (the short and medium run).

This first section of the article provides a brief overview of the article. A review of the "Familias en Accion" program is presented in section two, and section three assesses the different definitions of informality and its relationship with social protection and conditional cash transfer programs. In section four, we describe the characteristics of our data, characterize our sample and develop our main assumptions. Section five describes the methodologies used to accomplish the impact evaluation and the results of the estimation. Finally, in section six, we discuss the results and provide some conclusions.

1. Familias en Accion

   Familias en Accion is a social protection program in the form of a CCT. It has been applied by the Colombian government as part of the Social Support Network, "Red de Proteccion Social --RPS--", since 2001, with financial support from the World Bank and the Interamerican Development Bank. RPS is a public temporary social safety net that was created in 1999, with the aim of alleviating the effects of an economic recession and fiscal policy adjustments on extremely vulnerable populations in Colombia.

   The Familias en Accion program was implemented only in municipalities that met specific features, including having fewer than 100,000 inhabitants, preferably when located in a rural area, having at least one financial institution, not being the capital of a regional district, having the essential infrastructure for health and education services, and not being located in the Coffee Region (1) (IFS-Econometria, 2004). Within the selected municipalities (as detailed in Attanassio et al., 2006), of the 1,024 municipalities in Colombia, 691 qualified for the program, another eligibility criterion for Familias en Accion beneficiaries is an instrument called System for Identification and Selection of Social Spending Beneficiaries (Sisben in Spanish).

   Sisben classifies households into six different categories according to the household living conditions and defines potential beneficiaries of social programs as those people who are ranked among the three first levels (poor population). Sisben has evolved over time, (2) and the most important changes were focused on how to assess people's living conditions. The first version of Sisben was active from 1995 until 2005 (the implementation period of Familias en Accion) and was estimated through the principal components statistical procedure. The groups of variables considered for the index's construction were education, social security, demographics, income, house quality and equipment, and access to utilities (dnp, 2008).

   Sisben uses the Unsatisfied Basic Needs Index and the Poverty Line as judgment standards to define its classification thresholds. Then, according to dnp (2008), an individual was considered poor if at least one basic need was unsatisfied and his income was 1.7 times below the poverty line. In a similar way, an individual was considered extremely poor if at least two basic needs were unsatisfied and his income was below the poverty line. These cut-points helped define the six different levels of the Sisben classification.

   For a household to be enrolled by the National Planning Department --DNP-- as a Familias en Accion grant recipient, it had to fulfill certain conditions. First, the household had to have children aged between 0 and 17 years. Second, it had to be classified as Sisben-1, which means that it had to belong to the poorest part of the population. As special cases, households that had children aged between 0 and 17 years and had been internally displaced or indigenous could also be enrolled as Familias en Accion beneficiaries.

   The primary objective of Familias en Accion is to safeguard and foster human capital formation among children aged 0 to 17 from poor or vulnerable households through two different subsidies. The first subsidy is related to health and nutrition. It was provided to the beneficiary household on the conditions that children aged below 7 years were vaccinated and attended health and nutritional check-ups. In addition, mothers had to attend informational presentations on health, nutrition and contraception. The monthly CCT provided was approximately US$ 17.45 (COP (3) 50,000) and was given per family, regardless of the number of children aged below 7 in the household.

   The second subsidy is related to education and was provided to the beneficiary household for every child between 7 and 17 years who was enrolled in school and attended no less than 80 % of classes during the school year. As mentioned before, the monthly grant was given per child. In 2002, it was set at approximately US$ 5 (COP 14,000) for each primary school child and US$ 10 (COP 28,000) for each secondary school child.

   In accordance with our Familias en Accion database, an average beneficiary household has six members, (4) one of which is a child aged below 7, and two of which are children between 7 and 17 years. Given that the legal minimum wage for Colombia in 2002 was around US$ 107.8 (COP 309,000), the relevance of Familias en Accion grant is evident, since an average Familias en Accion beneficiary household would receive a grant of US$ 41.8 (COP 120,000) each month, which represents 38.8 0% of a legal minimum wage.

   To determine the impact of the program on children health and nutrition, an initial assessment was conducted in 2004, and a second one was conducted in 2006. The information collected contains data from beneficiary and non-beneficiary households with similar characteristics, aiming to estimate the impact of the program through quasi-experimental techniques. According to official reports (IFS-Econometria, 2004; dnp, 2008), the general conclusion of both evaluations is that the program effectively achieved its objectives, as it increased public expenditures on education, positively affected growth patterns among rural children and the weights of urban children, and reduced extreme poverty levels in rural areas, among others. (5)

2. Informality

   The origins of informality can be understood from two perspectives. The "exclusion" perspective claims that informality is imposed on individuals because of labor market segmentation (Rauch, 1991; De Soto, 1989; Harris & Todaro, 1970). In contrast to this position, the "exit" perspective argues that informality might be the individual's choice instead of an imposition (Hirschman, 1970; Hirschman, 1981). As Levy (2007) and Levy (2008) explain, informality could be a result of individual's optimal labor supply decisions.

   However...