Social insurance reform and workers’ compensation

Abstract

This paper uses matched employer-employee data to examine the wage responses to a mandatory social insurance reform program in Ethiopia. By relying on firm-level differences in alternative pre-reform contributory schemes, we examine the extent to which employers shifted the cost of social insurance to workers in terms of lower wages. We find partial switching that varies by workers’ employment history. Wages of recent hires by treatment firms show a decline proportional to the mandatory employer contribution rate. Wages of incumbent workers, however, continued to rise after the reform but at a slower rate relative to the control group. The post-reform reduction in wages is larger and significant for production workers and employees of low-wage industries. Treatment workers also experienced reductions in bonuses after the reform while their allowances remained intact.