The Public Policy Center of the Catholic University of Chile conducted a study on social policy incentives in the labor market and social security. The purpose of the study is to update the results of a previous study on the matter carried out in 2012 “Social security and social programs: main incentives and disincentives to the Social Security behavior of its beneficiaries.” On this occasion, 25 programs or policies in force in the country were analyzed, selected according to their relationship with different labor and social security facets, and their budget and coverage levels. These programs were related to education, income, employment, social security, health and housing. The findings show that: (i) The negative impacts of social policy design on formality and contributions would possibly be greater ; (ii) There is a group of policies that would theoretically incentivize formality; (iii) There are designs, at the programmatic or sectoral level, which combine social protection and the mitigation of disincentives to formality; (iv) The socioeconomic rating of 60% is very relevant in the design of social policies; (v) Means-testing is transversal in the Social Household Registry (SHP), so increases in the socioeconomic rating may have a high added impact.

The report recommends: (i) Ongoing strengthening of incentives in policies that promote formality; (ii) Mitigating disincentives in a group of policies, where feasible, and minimally impacting the original objectives of these programs; (iii) Continuing to advance to gradual, minimum-floor designs, with incentives to formal employment; (iv) Decreasing the importance of the HSR’s 60% threshold.; (v) Develop a plan to mitigate the costs of transition to formality.