Seminario CEDE - Brenda Samaniego

In this paper, we estimate the effects of a labor market flexibilization policy that allowed part-time contributions to the social security system in Colombia, a country with high levels of informality. We evaluate the impact of the reform along various margins, with a special focus on the effects on formal employment since increasing formality was among the reform’s main goals. Using household survey data, we find that the reform increased the probability of new contributions to the social security system within the population targeted by the reform: low-wage, part-time workers. Then, using administrative data and exploiting cross-city and industry variation in take-up, we argue that the reform is associated with a 1.6 percent increase in formal employment. This increase is due to a sharp increase in full-time and part-time formal job creation. We find a small negative effect on mean wages (0.3% decline), consistent with a rise in the use of low-skill, part-time work.