Social Insurance Reform and Labor Market Outcomes in Sub-Saharan Africa: Evidence from Ethiopia

45 Pages Posted: 31 Aug 2017

See all articles by Admasu Shiferaw

Admasu Shiferaw

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS)

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies; IZA Institute of Labor Economics

Mans Soderbom

University of Gothenburg

Getnet Alemu

Addis Ababa University

Abstract

This paper examines the labor market implications of a mandatory social insurance scheme introduced in Ethiopia in 2011 for private sector employees in the formal sector. We use firm-level panel data and exploit differences in pre-reform pension plans across firms to identify the effects of the reform. We find no evidence of employers fully shifting the cost of pension benefits to workers in the form of lower wages. In fact the reform seems to be associated with an increase in real wage rates particularly among large firms. Firm-level employment declined after the reform with a greater contraction among firms without pre-reform provident funds and firms that were initially small. The composition of the workforce also shifted in favor of skilled workers although this effect may not be attributed entirely to the pension reform. We also find an increase in firm-level investment, capital per worker, and labor productivity.

Keywords: social insurance, pension reform, labor markets, Ethiopia

JEL Classification: H55, J2, J3

Suggested Citation

Shiferaw, Admasu and Bedi, Arjun S. and Soderbom, Mans and Alemu, Getnet, Social Insurance Reform and Labor Market Outcomes in Sub-Saharan Africa: Evidence from Ethiopia. IZA Discussion Paper No. 10903, Available at SSRN: https://ssrn.com/abstract=3029773

Admasu Shiferaw (Contact Author)

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS) ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands

Arjun S. Bedi

Erasmus University Rotterdam - International Institute of Social Studies ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands
+31 70 426 0493 (Phone)
+31 70 426 0799 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mans Soderbom

University of Gothenburg ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Getnet Alemu

Addis Ababa University ( email )

King George VI St
Addis Ababa, 1000
Ethiopia

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