Who Is Covered and Who Under‐reports: An Empirical Analysis of Access to Social Insurance in Egypt

Abstract

This paper investigates the dynamics and determinants of having access to social insurance coverage on the Egyptian labour market among wage and non‐wage workers. The paper explores two issues: the worker‐level and firm‐level determinants of having access to social insurance and the risk of under‐reporting insurable wage to the social security authority. With the use of data from the Egyptian Labor Market Panel Survey of 2006 and 2012, the likelihood of being enrolled in social insurance is estimated by a probit regression model for all workers, for wage and non‐wage workers, separately. The potential endogeneity between the type of work and social insurance access is addressed using instrumental variables approach. Results show that men, older, married, better educated and white‐collar highly skilled workers are more likely to be socially insured. Under‐reporting insurable wages is positively correlated with working outside the establishment and basic monthly wage, while it is negatively correlated with tenure and white‐collar occupations. High contribution rates requested from both the employer and employee, combined with basing benefits on wage level of the last few years of service, and the weak capacity of law enforcement encourage employers and employees to either not participate in the social insurance system or contribute on amounts that are lower than their actual wage. This paper is one of the few studies that focus on the phenomenon of coverage gap and under‐reporting salaries to the social security administration. © 2019 John Wiley & Sons, Ltd.

Egypt’s reformed social insurance system: How might design change incentivize enrolment?

“…This trend may be a function of a lowered share of public-sector employment and a respective increased role for the private sector (Assaad and Barsoum, 2019). Coverage of pension schemes is primarily limited to wage workers in the public sector and large formal private-sector firms (Loewe, 2014;Roushdy and Selwaness, 2019;Selwaness and Ehab, 2019;Selwaness and Messkoub, 2019). Roushdy and Selwaness (2019) show that high contribution rates and certain system design features lead to the exclusion of those who are less educated, less skilled and low-wage earners.…”

“…Coverage of pension schemes is primarily limited to wage workers in the public sector and large formal private-sector firms (Loewe, 2014;Roushdy and Selwaness, 2019;Selwaness and Ehab, 2019;Selwaness and Messkoub, 2019). Roushdy and Selwaness (2019) show that high contribution rates and certain system design features lead to the exclusion of those who are less educated, less skilled and low-wage earners. Aside from issues related to cost and the calculation of benefits, Sieverding (2016) relates system challenges to poor public awareness about rights and the cumbersome procedures to enrol, particularly among new entrants to the labour market.…”

“…According to NOSI, the weak financial sustainability of the system provided a key impetus for the new reforms (NOSI, 2020). Enrolment in Egypt’s social insurance system has been primarily limited to wage workers in the public sector and in large formal firms in the private sector (Loewe, 2014; Roushdy and Selwaness, 2019; Selwaness and Ehab, 2019; Selwaness and Messkoub, 2019). As the data presented in this article confirms, coverage is generally associated with education and age, with older workers and those with higher education most likely to be covered.…”

“…A large pool of informal workers (including agricultural and self‐employed workers) has consistently remained outside of the system. Egypt’s social insurance system has also been marred by the under‐reporting of earnings, to reduce contribution levels (Roushdy and Selwaness 2019). System regressivity, due to specified contribution caps, has further contributed to under‐reporting (Roushdy and Selwaness, 2019).…”

“…In August 2019, the Egyptian Government issued a long‐anticipated social insurance law (Law 148/2019). Apart from providing a unified scheme for all groups of workers, the new regulation provides for systemic and parametric reforms particularly aimed at addressing the well‐documented challenge of low participation rates among workers in the private sector, especially so among new entrants to the labour market and workers in the informal economy (see, for example, Maait and Demarco, 2012; Sabreen and Mait, 2011; Roushdy and Selwaness, 2019; Sieverding and Selwaness, 2012). In fact, the National Organization for Social Insurance (NOSI) has described the purpose of the new legislation as seeking to incentivize participation in the system, particularly as regards workers in the informal economy (NOSI, 2020).…”