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A Puzzle – Claudia Martínez A. (translation)

The necessity of devising financial support for families to cope with the health emergency and economic crisis raises the challenge of designing instruments for different sources of income. While the main effort must be to deliver economic support rapidly - in a time in which a sense of opportunity is paramount and where the mistake of delivering resources late or not delivering them at all to those in need is extremely serious - it is important to consider how different forms of income support are interrelated.

One the one hand, assistance to formal workers is provided through a contribution to the insurance fund for unemployment (Seguro de Cesantía), the level of benefit is defined as a percentage of the salary of individuals (Ley de Protección al Empleo). On the other hand, support for informal workers is established through a fixed amount for lower-income households, with the amount based on the number of members and degree of vulnerability (Ingreso Familiar de Emergencia). Finally, it seems that, as rumors from the press report, a new benefit will be announced for contractor workers (trabajadores a honorario). This new program,   similar in nature to  the unemployment insurance would be financed first via a state fund and subsequently with direct deductions from contractor workers’ fees.

This portfolio of measures is interconnected to the extent that within the same households different sources of income may coexist. At the same time, policymakers should consider the  horizontal equity principle, which states that different sources of income should be treated symmetrically. In this regard, the level and amount of subsidy provided by the government to vulnerable individuals should be independent of their source of income. Discrimination by source of income could reward one source of income over another.

Although income support has been proposed as a temporary measure, eventually the health crisis may generate the need for these benefits to be expanded over time. In this context, thinking about these subsidies with a medium-term perspective becomes necessary.

Claudia Martínez A., Associate Professor and Head of the Master in Applied Economics UC, J-PAL affiliate.