Remittances, health insurance, and pension contributions: Evidence from Colombia

Abstract

Abstract Pension contributions and health insurance guarantee that people withdraw from the labor market without falling into poverty and protect individuals and their families against adverse health shocks. However, many workers with informal jobs in developing countries lack access to these two components of the social security system. This study addresses whether international remittance income increases participation in the pension and health schemes for individuals working in informal jobs. To identify the causal impact of remittances, I use a nationally-representative household data from Colombia and an instrumental variable (IV) approach that relies on unemployment shocks in the main destination countries of Colombian migrants arising from the 2008 financial crisis. My study finds that those informal workers who live in a recipient household are more likely to enroll in the contributive plans than those in non-recipient households. Moreover, relative to their mean participation shares, I find that for workers at their prime working-age, the impact is more pronounced for women, and for informal workers at schooling age, the impact is slightly larger for boys. Finally, I also find that remittances decrease the likelihood of having an informal job and increase the probability of having a job where the employer share the contribution to the social security system. As part of a special issue on Sustainable Development Goals, this article provides evidence that remittances are an important source of income that increases contribution to pension and health, two essential components of the social security system to improve well-being and fight against poverty.