Essays on informality and social protection in developing countries

Labor informality is a widespread and persistent phenomenon, particularly in the Global South. According to the International Labour Organization, almost 2 billion people, the 60% of total employment worldwide, worked informally in 2019, a number that has surely risen ever since due to the pandemic and the several unfolding crises. Informality, understood as the forms of work and production outside of regulations, is associated with low standards of living, vulnerability, precariousness, economic insecurity, and deprivation. It is thus at the center of several entangled social problems. Since informal workers are generally excluded from social protection systems, developing countries have responded by expanding social assistance programs. However, what can be achieved in that way is limited, and in the meantime a double fragmentation has emerged: labor markets and social protection systems are divided in various segregated tiers. It is likely that the two types of fragmentation might be reinforcing each other, but the explanations and possible solutions to this phenomenon depend on the particular worldviews and understandings of informality, social protection, and their interrelations. Therefore, my purpose along these essays is twofold. First, to explore the theoretical underpinnings of analyses of the double fragmentation in economics, and to analyze how they condition the design of social policies in relation with informality. And second, to propose an alternative theoretical framework that allows for a better understanding of the problem, and to show that it can lead to alternative policy designs, capable of providing sufficient and comprehensive social protection for all in developing countries, irrespective of their employment status. The thesis is divided in five chapters. In the first one I make a brief overview of the recent evolution of social conditions in Latin America, to illustrate the connections between social problems, informality, and social protection, and the issue of double fragmentation. In the second chapter I review how the concepts of informality and social protection have evolved in economic thought, in which I identify two main theoretical approaches: the dominant view, founded on neoclassical economics, and an alternative structuralist view. I argue that the neoclassical approach is insufficient for an analysis of social fragmentation, due to its excessively individualistic slant, while the structuralist approach accounts for macro-structural and systemic mechanisms in the analysis of informality, but has not explored deeply the role of social protection. In response to this, I build in the third chapter a schematic representation of the relation between informality and social protection, based on the Theory of Social Reproduction by Antonella Picchio, which allows to understand both informality and social protection as twin mechanisms that provide social stability by regulating the conflict around who bears the costs of social reproduction. I analyze these relations by adapting the schematic representation of National Systems of Social Protection by Bruno Théret, and show that the maximalist universalist approach to social policy by Andrew Fischer might provide a more stable social configuration. In the fourth chapter I build a theoretical dual-economy model to explore the possibilities of designing a program of social pensions guided by targets of full coverage and sufficiency, rather than austerity. In the model I incorporate insights from the structuralist approach, the Theory of Social Reproduction, and post-Keynesian economics, to show that, with a demand-led formal sector, full coverage and sufficient benefits in social pensions are possible, and that such a program can increase the well-being of informal workers by granting them the right to not work in old-age while providing income support. Finally, in the fifth chapter I make an empirical analysis of the double fragmentation for a wide group of developing countries. I build some indices of social protection fragmentation, with particular emphasis in the social insurance-social assistance dualism, and explore their relation with informality rates. I find that the relation is positive but generally weak, which suggests that perverse incentives coming from social protection systems play at best a marginal role in the overall dynamics of informality, that other dimensions of social protection fragmentation might be more important, and that alternative social protection designs where multiple regimes coexist in a non-fragmented way might be desirable.