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ECPR Standing Group on the European Union 10th Biennial Conference LUISS, Rome

Between Exclusion and Solidarity? Preferences for Private vs. Public Welfare Provision and the Size of the Informal Sector

Sarah Berens
University of Cologne
Sarah Berens
University of Cologne

Despite its prominent place in low- and middle-income economies, the informal sector has largely been neglected in standard political economy approaches on social policy preferences. Informal sector workers do not contribute to the public safety net, however, they might be able to free-ride on public welfare goods. Thus, a large informal sector is likely to decrease preferences for public social insurance programs of the formally employed in order to turn public welfare goods into club goods -- an assumption that will be referred to as exclusion hypothesis in the article. In contrast to this, the proposed solidarity hypothesis argues that the middle-income group allies with the informal sector due to the marginal distance between formal and informal employment. The study examines preferences for the provision of pension, education and health care by either the state or private enterprises of formal wage earners by testing these two competing hypotheses. Employing a hierarchical model on survey data from Latin America, with cross-level interactions between income groups and the size of the informal sector, the article finds limited support for the solidarity hypothesis. Insurance demand outweighs pure cost-benefit calculations and rivalry among the middle income group.
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