Essays on informality and social protection in developing countries

There are various self-reinforcing mechanisms that link informality with lack of social protection. When entitlements of social protection are determined by the formal employment status, informal workers are excluded by definition from those entitlements; on the other hand, informality hinders the establishment of tax-funded and citizenship-based social protection systems, because raising taxes from the informal sector is difficult. In this way, informality allows formal firms and the state to withdraw from their responsibility in guaranteeing the provisioning and economic security of the whole population. Meanwhile, the low and unstable incomes of informal workers make them unable to finance their own social protection. Therefore, reducing informality and extending social protection to informal workers is a priority challenge for developing countries, to which these have responded by expanding social assistance programs of subsidies, monetary transfers, in-kind benefits, and other types of support for informal workers and the poor.

However, what governments can achieve in that way is limited, given the sizable scale of informality and the low levels of income and institutional capacity in these countries. Consequently, there is still a large deficit in access to social protection worldwide, which in any case means low-quality social services and small benefits for most people. In the meantime, a double fragmentation has emerged: labor markets and social protection systems are divided in various segregated tiers. It is likely that the two types of fragmentation might be reinforcing each other, but the explanations and possible solutions to this phenomenon depend on the particular worldviews and understandings of informality, social protection, and their interrelations.

Therefore, my purpose along these essays is twofold. First, to explore the theoretical underpinnings of analyses of the double fragmentation in economics, and to analyze how they condition the design of social policies in relation with informality. And second, to propose an alternative theoretical framework that allows for a better understanding of the problem, and to show that it can lead to alternative policy designs, capable of providing sufficient and comprehensive social protection for all in developing countries, irrespective of their employment status.