Health Reform in Colombia : More Insurance and More Segmentation

Health reform in Colombia: more insurance and more segmentation?

CARLOS SOTO-IGUARAN [email protected] Comments and suggestions are welcomed

Laboratoire MATISSE- CES Université Panthéon - Sorbonne Maison de Sciences Economiques Bureau 201 - 0144078184 106 -112 Boulevard de l’Hôpital 75013 – Paris

Abstract In this paper, we intend to evaluate the Colombian health reform through an analysis of the labour market. As the reform establishes, via the contributive regime, a link between employment and insurance, we will look at the possibilities of accessing the health system depending on the type of employment status. Therefore, our point of interest is at the crossroad of labour market and welfare institutions. Based on the theory of equalizing differences, we used a discrete choice model for calculating affiliation probabilities. The same framework is found on neo-classic studies about individual utility maximization related to welfare insurance. The particularity of our approach is that we consider affiliation regime (used as the dependent variable) as a proxy of labour demand. This enables to introduce the role played by employers on the decision of affiliating their employees. Introduction Labour market segmentation theories were considered as a “challenge” for neoclassic theory (Cain, 1976). (For instance it addressed) Criticisms challenged the link between productivity and remuneration established by the human capital theory; but more generally, it was the whole neo-classic methodology which was refuted. For Berger and Piore (1980), discontinuities create differentiated working conditions within several markets, drawing aside the idea of a unique and competitive market. Many authors (Hodson and Kaufman 1982, McNabb and Psacharopoulos 1981, Cain 1976) argued, however, that studies on segmentation did not constitute a coherent theoretical corpus. Moreover, they suffered from an excess of empiricism reflected by the multiplicity of case studies not always conclusive and considered too descriptive1. Furthermore, neoclassic economists have succeeded, to a certain extent, to overcome this “challenge”. They integrated segmentation hypothesis into their models by endogenising market structures, institutions and which were not considered in their initial analyses. The demonstration of a segmented labour market lies on an inoperative effect of human capital on wages in a secondary market. In other words, this means that two different wage equations are necessary for representing each segment. Based on the assumptions of human capital theory, which links investment in education, labour productivity and remuneration level, it is possible to find factors affecting wage determination. This type of exercise was carried out in several studies on the Colombian labour market. Bourguignon (1979, 1983),

1 Usually, empirical papers base their analysis on factor analysis and classification methods have been widely used. See, for example, Oster (1979), Tolbert et al. (1980) and Eymard-Duvernay (1981) and Cunninghan and Maloney (2001). The advantage of these two methods is that there is no a priori allocation of individuals or productive units in a particular segment. Though, these are exclusively descriptive techniques. Fields (1990), Magnac (1991) and Uribe and Ortiz (2007) drew mitigated conclusions on the existence of segmentation within the labour job market. They all assumed the existence of a slightly competitive market. In this paper we will look for an alternative empirical approach to highlight the structures within the job market. By showing some limits of econometric techniques, as an appropriate empirical tool, we will look propose an alternative, based on the theory of equalising differences, for studying individual labour market status, related to social security contributions. By this way we can explore the links between labour market segmentation and the access to the health insurance in Colombia. The interest of studying these connections lies in the fact that the labour legislation and the health system underwent various reforms since the years 1990 with joint effects in the two spheres.

1. Some issues on econometric techniques

The neo-classic approach to labour market segmentation is based on individual rationality and maximization hypothesis. Mincer equations, that draw the productivity-wage link, are used for explaining the labour market functioning. The logic that dominates is the efficient allocation of workers, paid according to their productivity. Faced with alternative theories challenges, neo-classics appropriated segmentation assumptions, in part, by the sophistication of their own analytical instruments. These have, however, some limitations that we mention briefly here2. First of all, neoclassical models are subject to the dictates of the econometric technique. The latter imposes some constraints which prevent from considering larger real facts. This can be illustrated by considering the importance of econometric models assumptions. For instance, according to Fields (1990), one need two conditions for defining what a segment is through an endogenous variable (vis-à-vis wage determination). Labour must be homogenous in relation to variables not considered; also, there cannot be any kind of mobility across sectors. Although these restrictions can validate the test from an econometric point of view, we believe that there lie many problems. According to these restrictions, in the presence of mobile workers, it is not correct to “prove” the existence of segmentation from variables such as the type of firm, the type of occupation or the employment sector. For Fields, these are “income-determining factors which result from choices made by and opportunities open to workers in their quest for an improved economic position”3. The existence of inter-sectoral mobility increases the level of wages due to a higher level of education, ignoring this leads to biased results of wage regressions. This means that constraints of econometric tests fail to explore the impact of labour demand factors on the structure of the labour market. We assume that the latter plays on the determination of the forms of employment and occupation. However, regressions are supposed to include both factors supply and labour demand. In this regard, Fine (1998) asks: “What exactly is the equation being estimated, even from an orthodox, neoclassical point of view? Is it the supply of labour or is it the demand for labour? Or is it some reduced form of the two?”4. Fine criticises human capital econometric models for interpreting variables coefficients’ on the bases of their initial assumption. In the case of competitive markets, it may be the proxies of human capital that explain a possible wage differential. But assuming the existence of imperfections, these same variables are used to justify these imperfections. For instance, in

2 For more details see Soto-Iguarán (Forthcoming) 3 Fields (1990), p. 74. Types of firm, occupation and employment sector are endogenous variables in regard to labour income. 4 Fine (1998), p. 66. the case of competitive markets, a positive sign of the gender coefficient may be reflecting individual innate skills. In the second case – where there are market imperfections, the sign of the coefficient may be interpreted as the existence of discrimination against men or women. In the eyes of Fine, this approach reflects two weaknesses. First, it fails to identify a structure within the labour market due to the lack of distinction between supply and demand. Hence, the question about what exactly is being modelled5. Lang and Dickens (1987) argue that both, supply and demand, are included in these equations, but everything depends on a semantics choice. This means that no total distinction is possible: “it is not evident whether education should be considered as a characteristic of the worker or of the job”6. Secondly, and more importantly, Fine states that the theory is validated mainly from a test of significance, and not through an alternative hypothesis. This alternative hypothesis in the case of human capital, for example, lies in a competitive market which is used as a point of reference. However, as variables are included in the equation in order to reflect reality and its non-competitive functioning, the point of reference becomes unstable and depends on factors that one decides to take into account. This seems a common practice: to "accommodate" wage regressions, thus, all variables supposed to have an impact on earnings, especially those reflecting market imperfections, are included.

A second series of problems concern the wages functions which empirically validate the human capital theory. Heckman and Hotz (1986) observe that using a linear wage functions is a “central defect” of dualism tests. This criticism is also valid in the case of human capital: “We have no a priori knowledge of the relationship between income and education”7. There is no indication that the function that links education years to productivity follows that direction. There is no evidence that someone with twice as much education in years than another person is twice as productive. In this sense, “after correction of the selection bias, the findings supporting the dual hypothesis could just be a misinterpretation of a specification error”8. Moreover, there may also be a bad specification as a consequence of the assumptions made vis-à-vis the model’s variables. Considering the independence between variables in the regression cannot highlight the underlying structures of the labour market9. This is a theoretical mistake that implies that results of the empirical model are neither correct as “are left out “mutually determining relation between variables such as gender, occupation, capital- intensive and sector employment”10. Considering those relations means recognizing that there are underlying structures in the labour market.

Thirdly, another problem is related to the assumption of employment forms used in basic models. The simplest form of segmentation is used in these regressions, that is, a dual structure of labour is considered. On the other hand, employment forms are seen as homogeneous ensembles. If neoclassic authors criticize the ex ante allocation of workers in a particular segment, their assumption of the existence of an a priori formal sector separated from an informal sector is also questionable11. The empirical observation of the labour market 5 Fine illustrates this point with variables coefficients signs. For example, a positive sign for the part-time work variable may suggest that the employers seek cheap and flexible labour, a negative coefficient may suggest, in the contrary, the desire of a full-time job by workers. 6 Lang and Dickens (1987), p.6. According to these authors this lack of determination lies on the fact that the education variable is a characteristic of the worker/job match. 7 Heckam and Hotz (1986), p.528. 8 Hanchane et Nohara (2003), p.57. 9 Independence is necessary in order to avoid multicollinearity that would lead to biased results. 10 Fine (1998), p.67. 11 In the same way, it is possible to question the distinction of sectors according to a monetary threshold, when jobs have more qualitative characteristics that distinguish them. reflects a very different reality. Labour demand, ranging from the type of firms and industries, jobs and occupations, is proving to take different forms. Thus, the division into two segments results unlikely. Although econometric instrument is useful to quantify relationships between different variables and to highlight correlations, they do not necessarily lead to causalities. More importantly, this tool seems insufficient to reflect the fact that labour relations are essentially a social relationship. This relationship reflects the configurations of social and productive organization, and is distinguished by power asymmetries between the participants in the labour market. The limits of econometric tool can be illustrated with an example. If wage regression coefficients indicate that two identical individuals have the same salary, the assumption of segmentation is excluded. However, the conclusion is different if there are different forms of subordination despite equal pay. In other words, if there are separate working relationship in terms of contract type, stability, mobility, access to social security or any other labour protection, we might speak of a segmented labour market, even if there are identical workers paid at the same rate. Having said this, we propose next an econometric model based on the theory of differential compensation in which we will try to consider the impact of both labour supply and demand

2. Equalising differences model

In their study on labour segmentation, Dickens and Lang (1985) propose a model with a wage equation for each employment sector and a third equation determining individual probability of belonging to one employment segment. Their results, based on United States data, favour the hypothesis of labour market segmentation. According to Heckman and Hotz (1986), the rejection of the non-dualistic assumption is due to the fact that workers seek utility rather than income maximisation. Regarding this point Magnac (1991) adds that if the sectoral choice is a matter of individual utility, then segmentation is not a testable hypothesis: “if utility depends on nonwage-related characteristics of jobs, the true model is no longer a Roy model but a compensating wage differentials models”12. Indeed, when testing the rationing of primary jobs, Dickens and Lang assume that workers maximize their utility depending on income level but also on non-monetary jobs characteristics, such as employment quality (schedule, risks, experience required, etc.) or benefits regarding social security. From our point of view, this is a crucial issue that binds employment to social insurance. Note, however, that the mentioned correlations concern individual preferences -risk aversion, for instance- and the type of employment chosen. We consider that this is one dimension, but not the only one, which must be taken into account in the analysis of the relation between employment and social insurance; we propose below a model of sectoral choice based on utility maximisation. However, the peculiarity of our model lies in the nature of the variable to explain. Our hypothesis is that workers maximize their utility when they get access to social security. The dependent variable used is the type of contributions to health insurance. A brief presentation on the functioning of the Colombian social security system is thus necessary. In 1993, a new health system was set up. The reform has altered resource flows: from then on, health providers ought to sell their services to finance themselves, and system users chose among different health insurance companies (Graphic 1)13. Two separate systems were

12 Magnac (1991), p.181. 13 Insurance companies (public or private), called EPS (Empresas promotoras de salud) or ARS (Aseguradores del regimen subsidiado), contract with health providers (IPS – Instituciones prestadores de salud) to take charge of their clients. created. Access to the Contributory regime (CR) is done through payroll taxes paid jointly by employees and employers; self-employed persons can also pay the full amount by their own. By this way they have right to a set of health services, called POS (Compulsory health plan). People can also access the CR as beneficiaries of their spouse. The Subsidised regime (SR) is a means-tested system; those who qualify to the subsidy (depending on their socio-economic characteristics) get access to a set of health services14. Coverage increase is mainly explained by the increase of the number of subsidies, which means that the system relies less on wage insurance (Table 1). Hence the assumption that insurance increases together with higher labour market segmentation, as different insurance modalities enrol workers in different career paths15. We will try to highlight through our econometric model this double movement which may seem paradoxical.

The originality of the variable chosen, which takes into account these different ways of affiliation, is that it reflects individual labour market status. Belonging to the CR supposes being engaged in a formal labour relation in which employers declare their employees and contribute to their social security affiliation. In other cases, labour status may be more or less formal, depending on the type of independent work considered16. Though occupying a salaried employment does not guarantee the contributions to insurance schemes. This can be explained by a combination of strategies deployed by mutual agreement, by households and employers that lead to elusion and/or contribution evasion. Furthermore, this is only one dimension defining informality which comprises evasion of labour legislation, not only concerning health contributions, but also pensions, minimum wage, employment risks legislation, etc. The type of access to health insurance can be interpreted, on the one hand, as the type of job offered, i.e. labour demand: employers choose the type of insurance given to employees. Health insurance contributes to individual utility maximization; this depends on individual characteristics that we may consider, on the other hand, as the labour supply. An interaction between labour supply and labour demand is thus implicitly assumed in the partial equilibrium model that we present now. We suppose an economy where workers maximize their utility based on their wage (W) and on a basket of consumer goods attached to their employment (S)17.

ui = ui (W, S)

In our case, S corresponds to the consumption of social benefits and takes the value 0 if the workers have access to social security and 1 if access is denied.

ui = ui (W, 0) ou ui = ui (W, 1)

S takes a dichotomous form (insurance, non-insurance) but, as indicated, there are different modalities of access to the system (see below). The theory of equalizing differences, which is at the basis of our model, constitutes an explanation of wage determination. Rosen (1986) explains that some type of compensation should balance advantages and disadvantages between different types of employment. It is therefore an alternative for explaining wage hierarchy, in opposition to segmentation theories that study the existence of a pay scale and career paths across internal and external labour

14 An annual survey (the SISBEN) identifies beneficiaries of the SR. It right to a set of health services (POS-S) that corresponds to half of the services offered by the POS. 15 A labour reform was adopted in 1990 that introduced less restrictive forms of employment and made more flexible employment contracts and less costly severance pay. 16 Micro-enterprises owners cannot be considered at the same level of street vendors.. 17 We suppose that the all income is consumed and savings are thus inexistent. markets.

In this sense, a worker would accept a job of lesser quality (in our case without access to social security), if a premium compensates their opportunity cost. If W0 is the wage without social insurance, W1 is the wage of protected jobs that equals to:

W1 = W0+Z

Z corresponds to the minimum compensation income required so that a risky job can be accepted. Those who accept an unprotected job receive a higher salary. The additional income will allow the equalization of the value corresponding to each type of work. Thus, they can indiscriminately choose to work with or without insurance:

ui (W0, 0) = ui (W0+Z,1) ~ In terms of utility, the cost W of access to social security for each individual, i.e. the sacrificed income W or lost utility, due to insurance benefit, is equal to: ~ W = ui (W0) - ui (W0- W ) ~ By comparing the utility of being affiliated u(S), to the cost W , it is possible to determine for each individual the choice concerning the payment of contribution to social insurance. ~ ~ If u(S)>W , then the individual will seek affiliation. If u(S)

The reasoning is similar in the case of firms, which are expected to maximize their profit. The latter will compare the costs to the benefits of providing insurance to their employees. The cost is associated to the wage percentage that employers must pay on behalf of their workers. On the other hand, the profits of paying employee contribution, V, can be deducted from gains in productivity, as a worker covered against social risks is supposed to be more productive. The utility of profits, ui(V), represents a productivity differential between insured and uninsured workers:

ui (V) = (va - vna)

The costs borne by firms Wˆ include both wages and the amount of employer contribution CP:

Wˆ = u(W0) - ui (W0- CP)

In the same way we saw for individuals, firms have three different possibilities to consider. If u(V) is higher than Wˆ , then the firm will opt for the affiliation of workers to social insurance. If, however, u(V) is less than Wˆ then any contribution will be done. Finally, if u(V) and Wˆ are equal then the firm is indifferent towards workers insurance. We try next to estimate the probability of affiliation to social security for workers in Colombia. The explanatory variables combine individual characteristics as well as firms and employment sector types. Affiliation probability is calculated by using discrete choice models that can simultaneously integrate different modalities related to the dependent variable18. These models can indeed explain discrete variables, i.e. qualitative variables taking multinomial or dichotomous terms. In our particular case, we will assume the existence of two mutually exclusive choices, which are based on the utility expected. As linear probability models present some problems (estimated values outside the limits 0-1, heteroscedasticity problems, residues not following a normal distribution), we will use non- linear models: a logit model is estimated using the maximum likelihood method.

In this way, it is assumed that S, which represents individual preferences concerning affiliation, and that CP, which represents firms’ affiliation costs, can be estimated according to the following stochastic equality19:

Si  x xi  ui (3) CPi   z zi  vi (4)

From these two equations, we consider that the type of contribution TC is a function of individual characteristics and employment forms:

TCi   x xi   z zi  vi  ui (5)

Variables included in the vector xi concern individual preferences like age, sex, family status and household income. Other variables related to the labour market status are also considered, as is the case of wage level, years of education completed and professional experience. Variables included in vector zi, concern employment forms like type of employment contract (verbal or written), the type of written contract (fixed or permanent) and type of occupation (worker or employee of the private sector or the public sector, domestic employee, self- employed, independent professional). On the other hand, there are variables related to firms’ characteristics as the economic sector and the number of employees.

3. Results interpretation

The data we use comes from the Encuesta Calidad de Vida conducted in 2003 among 22,949 households or 85,150 observations. With an error margin of less than 5%, the survey is representative of nearly 11.2 million households, or nearly 43.7 million people. The sample we used is restricted to the active population urban area. The different regressions include individual independent variables and subsequently variables related to the type of employment. The first modality of our dependent variable includes contributors to the CR. As already indicated, this variable indicates the labour market status, and those affiliated to the CR are supposed to work under formal working relationship20. The results can be seen in Table 2. Coefficients correspond to the odds ratios estimates, which equals the exponential regression coefficients. In the first regression (Column 1), we have included three economic sectors, and four types of occupation that correspond to salaried employment: industry, construction and trade employ respectively 2.1 million, 740,000 and 4.2 million people, i.e. more than half of the occupied population (54%). Workers and employees of the private sector exceed 5 million people, public employees are a total of

18 The same type of model is used by De La Rica and Lemieux (2003) in a comparative study of Spain and the United States and Vargas (2007) in the case of Colombia. 19 We suppose that residues ui and vi are normally distributed. 20 It may be the case, though, that those persons contributing to the CR may not have a pension plan, enlarging the spectre of informality. nearly 1 million, daily labourers do not exceed 150,000 and domestic workers are around 700,000 people.

According to the odds ratios in the table below, the relative probability of contributing to health insurance increases 1.57 with an increase of one unit of the wage logarithm and 1.13 with an increase of one unit of the logarithm of hours worked per month. These results are expected as a higher income increases the possibility of contribution, the same may be said concerning the number of hours worked. The effect is lesser in the case of higher education (1.08) or more experience (1.02). These factors, close to 1, seem to fit real-life situations to the extent that education should not have a cumulative effect over time on the likelihood of contribution. However, we can consider that with a certain level of education, access to the CR is more likely, because, for instance a university degree makes the access to formal employment easier. One might expect, the same thing concerning experience, but the effect is particularly low. We must note that the coefficient is even lower in the case of women. In addition, being married has a positive effect in general, but in the specific case of women it is significantly negative: being a married woman reduces the relative probability of contribution by 0.54. This result coincides with a current situation in households where the man plays the role of bread-winner and his affiliation benefits other members of the family, while women remain in great part in charge of domestic tasks or work in informal jobs. The gender variable, on the other hand, is not significant, thus we cannot see how it can affect the contributing probability. The coefficient is 0.8 in the case of men, which is opposite to the expected result as women are more frequently victims of discrimination and higher insecurity on the labour market. Regarding variables describing employment, several interesting aspects should be emphasized. Firstly, the group of control concerning labour contracts corresponds to verbal contract. The link is clear between affiliation to the CR and written contracts. However, there is a significant differential between fixed-term contracts and those with indefinite duration. In the first case, the chances of contribution are multiplied by 8, while only twice in the second case. Secondly, regarding the forms of employment, there are differences in respect to the control group formed mainly by independent labour (workers and professionals). The groups included in our regression have very high odds ratios. Public sector workers have the higher probability of contribution (6.24) and for private sector workers the likelihood remains high but to a lesser extent (4.9). The difference between the two types of occupation is understandable as the state promulgates the law and should be the first to enforce it. Besides, more than half public officials are unionized and often belong to special regimes. In the private sector the situation is more unequal and heterogeneous. Although more important for domestic workers than for day labourers, the probability of belonging to the CR (2.7 against 2) is greater for these categories than for the control groups. This result may seem surprising, but can be explained by the fact that those are salaried jobs in which employers choose unilaterally the affiliation. This is less true in the case of independent labour as affiliation is purely individual and may be less likely as their activities are more precarious. Again, we must remember the heterogeneity of independent workers. But still, results remain very surprising as there is a lot of informality among domestic workers and daily labourers21. Differences are significant and demonstrate the impact of different forms of subordination, with different degrees of stability and job quality. Those with a short-term contract undergo a

21 If the same regression we specify one type of occupation each time, in both cases we have contribution probabilities inferior to 1 (0,6 in the case of domestic workers and 0,4 in the case of daily labourers). significant mobility that allows them to contribute to the CR, but not in a stable way. The frequency of contribution will depend on the economic sector and the type of firm. There are, indeed, some differences depending on the type of economic activity. We took as regressors important and dynamic employment sectors such as industry, trade and construction. In the last sectors there is, to a greater extent than in the first one, more informal employment. If we define informality according to firms' characteristics, it is higher than 30% in the case of trade, against 16% and 6% in the case of industry and construction, respectively. However, if we take a broader definition, there may be greater informality in the case of construction. In the case of trade, the number of self-employment remains very significant and so is informality. Industry workers have a greater chance of being employed under formal conditions, although this does not mean that informal employment is non-existent in this sector. Differences between these three sectors, compared to other (agriculture, services, transport) are reflected in the regression results. Affiliation probability to the CR is higher for industrial workers (1.16), and is less than 1, in the case of construction and trade (about 0.8 in both cases). In a second regression (Column 2), we have included the number of employees by firms, as additional variable, instead of economic sectors. The coefficients of variables described above vary slightly. The control group is firms with less than 5 employees. The results are consistent with the definition of informality defined by the size of productive units: the higher the number of employees, the higher is the probability of affiliation22. Productive techniques, legislation influence, labour relations, among others, are at opposite extremes in the case of micro-enterprises (3 or 4 workers) and firms employing 200 or more persons. The latter are more visible and thus obliged to respect the law to a greater extent. However, they can also find different strategies so as to develop a more flexible management of their workforce.

In a second step, we sought to estimate probabilities of independent contribution (Column 3). Firstly, the wage level plays significantly in this kind of affiliation. The coefficient is 1.74 and shows a stronger relationship than in the last two regressions. Being a woman has a negative relationship with independent affiliation. In this particular case, it is normal to find that independent activities have a greater probability compared to others (salaried employees). However, there are differences depending on the type of independence: small employers have a greater relative probability than independent professionals, who in turn have a greater chance of belonging to the regime than self-employed workers (coefficients are respectively equal to 5.25, 3.18 and 3.06). These results may reflect the link mentioned between salaries and this type of contribution. The negative coefficients of type of contract variables seem obvious since, by definition, self-employed workers do not have legal relations with an employer.

In a final series of regression we took the fact of being beneficiary of another person’s contribution or from a public subsidy, as independent variables (Columns 4 and 5). We found that in both cases there is a negative relationship with the salary, which is higher for those benefiting from SR. These results seem normal in the sense that the public subsidy is awarded on the basis on socio-economic criteria. Thus, low-income households usually belong to the SISBEN. The reasoning is similar in the case of education years, for which there is also a coefficient less than 1. Being a woman increases significantly belonging to these two forms of affiliation. In addition, married women have a higher probability of benefiting from their spouse, while unmarried women are more likely to receive a subsidy. Coefficients regarding employment contracts are obviously negative as having a contract supposes higher incomes and contribution to the CR. Finally, it is mainly independent

22 The odds ratios follow the same direction of the former regression. workers and those working on the trade sector, which are the most likely to be in this type of affiliation.

4. Concluding remarks

Preliminary results obtained through the former discrete choice model show that labour demand is significant in structuring the labour market. Variables concerning the type of firm or other where employer choices come into play have an active role in determining people’s affiliation to the health system. The reform adopted in the last years may have helped to increase affiliation rates because of the existence of subsidies. But the existence of various health insurance schemes leaded to the enrolment of workers in different forms of employment and crated inequalities in the access to social protection; belonging to one of these segments depends on individual characteristics as well as employment sector. In a forthcoming paper, we sought to improve this initial hypothesis by interviewing employers and employees of different sectors. To sum it up briefly, we noted that the labor factor constitutes a mechanism of flexibility for firms, and in particular throughout the different insurance modalities. To cope with different constraints (such as competition from formal and/or informal firms, access and costs of financial credit, expensive laws, etc), Colombian firms set up, among other strategies, a particular management of their human resources. As a result, employment forms with hybrid characteristics (between formality and informality) emerge, which are deployed inside or outside productive units and vary according to workers characteristics. Due to the limitations of econometric techniques presented in this paper and to the high level of aggregation of available data, interviews with labor market actor seem as an ideal complement for a deeper analysis of underlying labor market structures.

Graphic 1 The Colombian Health Stystem Source: Gonzalez-Rossetti, A., Ramirez, P, (2000), p 34

TABLE 1 Health insurance affiliation (2000-2006) 2000 2001 2002 2003 2004 2005 2006 Contributive 33.5 31 30.1 31 33.8 33.7 36.28 Regime (%) Subsidised 25.5 25.7 26.1 26.6 34 40.4 42.99 Regime (%) Contributive 9 510 11 069 11 444 11 867 15 553 16 581 20 107 Regime (thousands) Subsidised 14 193 13 336 13 165 13 805 14 857 15 533 16 971 Regime (thousands) Total affiliation 23 703 24 405 24 609 25 673 30 410 34 114 37 078

Total 42 321 43 010 43 834 44 583 45 325 46 039 46 772 population Affiliation (%) 56.01 56.66 56.14 57.58 67.09 74.01 79.27

Source: Ministerio de la Proteccion Social - DANE TABLE 2 Probabilities of contribution/affiliation to the social security regimes Contribution to the Contribution to the Independent Contribution Subsidised Contibutive Contibutive contribution regime regime Regime Regime beneficiaries beneficiaries (1) (2) (3) (4) (5) Log wage 1.57 1.45 1.74 0.95 0.71 (0.000) (0.000) (0.000) (0.027) (0.000) Log hours worked 1.13 1.16 1.10 0.78 1.11 (0.002) (0.000) (0.033) (0.000) (0.000) Education 1.07 1.07 1.12 1.09 0.84 (0.000) (0.000) (0.000) (0.000) (0.000) Work experience 1.02 1.02 1.011 1.005 0.98 (0.000) (0.000) (0.000) (0.010) (0.000) Man 0.89 0.88 0.93 0.089 0.65 (0.147) (0.099) (0.504) (0.209) (0.000) Married women 0.54 0.55 0.74 1.97 0.65 (0.000) (0.000) (0.008) (0.000) (0.000) Women experience 1.00 1.01 1.005 1.00 0.99 (0.003) (0.003) (0.127) (0.946) (0.240) Labour contract 8.38 5.77 0.59 0.34 0.25 (Fixed term) (0.000) (0.000) (0.000) (0.000) (0.000)

Labour contract 15.68 11.18 0.17 0.15 0.13 (Permanent) (0.000) (0.000) (0.000) (0.000) (0.000)

Private employee 4.97 3.49 (0.000) (0.000) Public employee 6.24 3.05 (0.000) (0.000) Daily labourers 2.04 1.31 (0.002) (0.257) Domestic workers 2.70 3.24 (0.000) (0.000) Industry 1.16 0.79 1.05 0.91 (0.005) (0.005) (0.359) (0.149) Construction 0.83 0.51 0.87 1.71 (0.068) (0.000) (0.185) (0.000) Trade 0.87 0.99 1.18 1.02 (0.005) (0.942) (0.000) (0.665) Less than 10 1.62 employees (0.000) Less than 50 2.62 employees (0.000) Less than 250 3.44 employees (0.000) More than 250 3.70 employees (0.000) Independent 3.18 1.11 0.227 Professionals (0.000) (0.281) (0.000) Independent workers 3.06 1.37 1.08 (0.000) (0.000) (0.069) Small Employers 5.25 1.04 0.62 (0.000) (0.840) Observations 25745 25745 25745 25745 25745 Log likelihood -9010.09 -8776.64 -5517.50 -9034.29 -8145.8 Pseudo R2 0.4803 0.4804 0.177 0.1255 0.1984 Bibliography Berger S. et Piore M. (1980), Dualism and discontinuity in Industrial Societies, Cambridge University Press. Bourguignon F. (1979), “Pobreza y Dualismo en el Sector Urbano de las Economías en Desarrollo: El Caso de Colombia”, Desarrollo y Sociedad, n°1. Bourguignon, F. (1983), “El Papel de la Educación en el Mercado de Trabajo Urbano en el Proceso de Desarrollo: El Caso de Colombia”, en Urouidi V. y Trejo S., Recursos Humanos, Empleo y Desarrollo en la América Latina, Fondo de Cultura Económica, Lecturas n°51, El Trimestre Económico, México. Cain G. (1976), “The Challenge of Segmented Labor Market Theories to Orthodox Theory: A survey”, Journal of Economic Literature, vol. 15, n° 4. Cunningham W. and Maloney W. (2001), “Heterogeneity among Mexico's micro-enterprises: an application of factor and cluster analysis”, Economic Development and Cultural Change, n°50, p. 131-156. De la Rica S. and Lemieux T. (1993), “Does Public Health Insurance reduce labor market flexibility or encourage the underground economy?”: Evidence from Spain and the United States”, NBER Working Paper, n° 4402. Dickens W. and Lang K. (1985), “A Test of Dual Labor Market Theory”, The American economic review, vol.75, n°4, septembre, p.792-805. Eymard-Duvernay F. (1981), “Les secteurs de l’industrie et leurs ouvriers”, Economie et Statistique, novembre, p. 49-68. Fields, Gary (1980). “How segmented is the Bogotá Labor Market?”, World Bank Working Paper, n°434. Fine B. (1998), Labour Market Theory, Routledge, London. Hanchane S. et Nohara H. (2003), « Formation, mobilités et régulation de la relation salariale : quelles formes de spécificité et de transversalité ? », Working paper LEST. Heckman J., Hotz V. (1986), “An Investigation of Labor Market Earnings of Panamanian Males”, Journal of Human Resources, n°21, p. 507-542. Hodson R. and Kaukman R. (1982), “Economic Dualism: A Critical Review”, American Sociological Review, n° 47, p. 727-739. NBER Working Paper, n° 1314. Lang K. And Dickens W.(1987), “Neoclassical and Sociological Perspectives on Segmented Labor Markets”, NBER Working Papers, n°2127. Mcnabb R. and Psacharopoulos G. (1981), “Further evidence of the relevance of the dual labor market hypothesis for the UK”, Journal of Human Resources, n°16, p. 442-448. Magnac, T., (1991), “Segmented or Competitive Labor Markets”, Econométrica, vol. n°59, p. 165-187. Ministerio de Agricultura: Observatorio Agrocadenas (2005), Agro-industria y competitividad, www.agrocadenas.gov.co. Oster G. (1979), “A Factor Analytic Test of the Theory of the Dual Economy”, Review of Economics and Statistics, n°61, February, p. 33-39. Rosen S. (1986), “The Theory of Equalizing Differences”, in Handbook of Labor Economics, Ashenfelter O.and Layard R. (eds), p. 641-692. Taubman P. and Wachter M. (1986), “Segmented Labor Markets”, in Handbook of Labor Economics, T. II, ed. Elsevier Science Publishers. Tolbert C., Horan P., and Beck E. (1980), “The Structure of Economic Segmentation: A Dual Economy Aproach” The American Journal of Sociology, vol. 85, n°5, march, p. 1095-1116. Uribe J. y Ortíz C. (2007), “Segmentación del mercado laboral colombiano en la década de los noventa”, Revista de Economía Institucional, vol. 9, n°16, p. 189-221. Vargas A. (2007), “The effects of social security contributions on wages: The Colombian experience”, mimeo.