LA GRAN INVOCACIÓN UN MANTRAM DE LA NUEVA ERA

6.1. Introduction

This chapter analyses and compares the potential effects of cash benefits on disposable income. The cash benefits offered by the Federal Government in 2012 through social insurance or social assistance programmes include the following:

 Incapacity benefits to replace income when workers are temporarily unable to perform their job. These benefits cover exclusively formal sector employees and are delivered by the social insurance system since its creation. In the case of private sector employees benefits are regulated by the Social Insurance Law (LSS) (LSS, 1997) and administered by the Mexican Social Insurance Institute (IMSS), and in the case of public sector employees, by the Law of the Institute of Social Security and Services for State Workers (LISSSTE) (LISSSTE, 2007) and the Federal Law for State Workers (LFTSE), (LFTSE, 1963), and are administered by the Institute of Social Security and Services for State Workers (ISSSTE). Both systems offer three types of benefits meant to cover incapacity periods generated by different causes, which are sickness, work injuries and maternity.

 Family benefits to provide income support to low income families, introduced in 1997. These benefits delivered by the social assistance programme Oportunidades are targeted and conditional on school attendance by children and on attendance to health related activities by all family members. Benefits’ amounts depend on the household’s composition; a basic amount is offered to all families whether they have children or not and extra amounts are added for every child in school age. Amounts are higher for girls than for boys and increase for children in higher school grades. The lack of access to social insurance forms part of the main criteria to determine access to the programme.

 Pensions to provide an income when people are deemed permanently unable to work. Pensions are delivered by both the social insurance and social assistance systems. Social insurance offers old-age and retirement, disability, work injuries and survivors’ pensions; social assistance offers only old-age pensions. This study analyses old-age pensions, which represent the largest share of the total amount of pensions paid by the Federal

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Government. Social insurance pensions exist since the creation of the system and are regulated by the Social Insurance Law (LSS) and administered by the Mexican Social Insurance Institute (IMSS) in the case of private sector employees, and by the Law of the Institute of Social Security and Services for State Workers (LISSSTE) and the institute of the same name (ISSSTE) in the case of public sector employees. Social assistance non- contributory pensions are delivered through the programme 70 y Mas introduced in 2007. The programme offers old-age pensions to elderly people without a social insurance pension. Initially its coverage was geographically limited to rural areas, but it was later expanded to larger communities and in 2012 to the entire country.

The main indicator that was used to establish the redistributive potential of cash benefits was disposable income expressed as a percentage of original income. Disposable income was calculated by subtracting from original income, the contributions and taxes that the model household would have to pay and adding all cash benefits that it would be entitled to receive according to the system’s rules in force in 1994 and 2012. All calculations were done on an annual basis. The chapter discusses the results of the calculations of the model families that better illustrate the changes in the levels of support offered by the system.

The rest of the chapter is divided in five sections. The next section presents the calculations of temporary incapacity benefits, which as mentioned, include sickness, work injuries and maternity benefits. The following section discusses the results of the calculations of family benefits and the fourth section the calculation of pensions. Each of these three sections is divided in three parts, the first part presents benefit amounts, the methodologies to calculate them and the eligibility criteria before and after the reforms, the second part specifies the assumptions made to estimate the effects of benefits on the selected model households, the third part analyses and compares the effects of benefits on disposable income. The final section wraps up the chapter and offers some concluding remarks.

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6.2. Incapacity Benefits

6.2.1. Incapacity Benefits Eligibility Criteria and Amounts

Private and public sector employees are entitled to three types of benefits to replace income during spells when they are incapacitated to perform their job. The first type is a sickness benefit when the worker suffers from an illness or is recovering from an accident not related to his work activities. The second type is a benefit for work injures in case of illnesses or accidents directly derived from work related activities. The third type is a maternity benefit paid to all insured women in work for a set period before and after giving birth; only women in work are entitled to this benefit, so spouses of male insured workers would not receive it.

Benefits for private sector employees are administered by the IMSS and for public sector employees by the ISSSTE. Only the methodology for calculating IMSS incapacity benefits was modified by the reforms, although in practice benefits resulted in the same amounts for all workers. Under the previous law, sickness benefits amounts were taken from a table of nine wage levels. The incapacitated worker’s wage was placed in the corresponding level, and the benefit was paid at 60 per cent of the level’s average, except for low and high income workers: for workers earning up to 3 times the minimum wage and above 18 times the minimum wage, the benefit was simply calculated at 60 per cent of salary. Maternity leave was paid at 100 per cent of the level’s average, except for the same low and high income ranges, for which the benefit amounted to 100 per cent of the registered wage. Both formulas would generate the same replacement rates as the ones obtained by applying the previous methodology. Work injuries benefits were not modified.

In the case of ISSSTE incapacity benefits, neither amounts nor the eligibility criteria were modified by the reform. Table 16 compares amounts, duration and eligibility criteria for each type of benefit between the IMSS and ISSSTE systems for the year 2012. The IMSS sick leave is paid at 60 per cent of wage starting from the fourth day of incapacity, and work injuries and maternity leave at full wage from the first day. The payment of ISSSTE sick leave varies with the length of employment; for example, for a worker employed for less than one year the first 15 days of incapacity are paid at 100 per cent of wage and from the sixteenth day until 52 weeks at 50 per cent of wage. Work injuries, on the other hand, both system pay benefits under the same

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conditions as, with 100 per cent of wage covered from the first day of incapacity up to a maximum of 52 weeks. Maternity leave for public sector employees covers a period of six days more than for private sector employees, although in both cases it is paid at 100 per cent of wage.

Table 16. Incapacity Benefits: Eligibility Criteria and Benefits, 2012

Benefit

IMSS ISSSTE

Amount Duration Eligibility

Criteria Amount Duration

Eligibility Criteria Sickness 60% of wage From 4th _day