Jens Matthias Arnold
Elisa Carolina Estrada Garcia
Priscilla Fialho
Mafalda Trincão
Expanding Social Protection and Addressing Informality in Latin America
Abstract
Informality in Argentina remains high in international comparison. While Argentina’s social protection system has achieved an almost universal pension coverage and features several well-targeted cash transfers that effectively improve incomes and opportunities for those in need, it relies on high social security contributions to be financed, raising the cost of creating formal jobs. Argentina’s labour tax wedge is higher than in most OECD countries. Reducing these high non-wage labour costs for low-wage earners with salaries close to the minimum wage may create substantial benefits for formalisation and could be financed through both spending and revenue measures. In the long-term, moving towards a multi-pillar system with better incentives would have additional positive effects on public revenue, given that more economic activity would move into the formal sector and more workers would find opportunities to progressively move up the job ladder.
A sizeable share of Argentina’s economic activity has traditionally been outside the formal economy. Based on the definition of informality used by the International Labour Organisation (ILO), which includes all work not formally registered, taxed, and compliant with employment regulations, in 2023, 50% of employment in Argentina was in the informal sector. This is lower than in some regional and Asian peers, but significantly above the levels observed in most OECD economies (Figure 4.1). National data sources, which use a slightly different definition and methodology, suggest that at the end of 2024, informal employment concerned about 42% of total workers.
Note: 2023 for Argentina, Brazil, Chile, Costa Rica, Colombia, Mexico, Viet Nam, Peru, Indonesia and Türkiye; 2021 for Australia, Hungary and Switzerland; 2020 for Norway; 2019 for Denmark and Korea; 2018 for Iceland, Thailand and the United Kingdom; and 2022 for other countries.
Source: International Labour Organisation, based on SDG Labour Market Indicators.
Informal work in Argentina decreased sharply in the mid-2000s, when rising commodity prices and favourable global liquidity conditions allowed growth to recover, improving employment conditions and raising real incomes (Figure 4.2). However, informality bounced back again over the last decade, especially after the 2018 economic recession, aggravated by the COVID-19 crisis.
Source: ILO SDG indicator 8.3.1 – Proportion of informal employment in total employment (%), based on microdata from EPH, INDEC.
Beyond changes over time that may be correlated with the business cycle, the incidence of informal employment varies greatly across demographic and socio-economic groups. The share of informal employment generally decreases with age, reaching about 25% for 50-year-olds, before rising again for older workers, particularly after the legal retirement age of 60 and 65 years for women and men, respectively (Figure 4.3).
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
The share of informal employment is also negatively correlated with educational attainment. Workers with low levels of educational attainments, particularly those who have not completed secondary education, are more likely to work informally (Figure 4.4). In contrast, among individuals with a higher-education degree, the incidence of informal employment falls well below 20%.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
Informality also varies significantly across sectors of activity and regions. Informal employment is particularly prevalent in domestic services, construction, hospitality services and retail trade. It is much less common in the public sector and education (Figure 4.5).
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
From a geographical perspective, informal employment is more widespread in the economically lagging northern regions. However, available measurements are based on the Permanent Household Survey (“Encuesta Permanente de Hogares”, EPH), which only covers the population living in the major urban areas with at least 100 000 inhabitants. Smaller urban and rural areas are excluded from the survey. Since the distribution of small urban and rural populations is not uniform across provinces, in some provinces the survey covers only about 30% of the population (World Bank, 2024[1]). Any analysis of informality based on the EPH household survey is therefore limited as it relies on the assumption that labour market patterns in small urban and rural areas are similar to those in the main urban areas.
Informality affects not only workers, but also enterprises, although there is no perfect overlap between the two and not all informal employment takes place in informal firms. In fact, among firms that are formally registered, approximately one in six workers is employed informally (Figure 4.6). Firm informality, defined as businesses that are not declared to tax and/or regulatory authorities, could be as high as 13%, according to some estimates (Amin, Ohnsorge and Okou, 2019[2]). Unregistered firms are generally small-scale, less capital and technology intensive, and concentrated in less productive activities. Informal firms are less likely to use modern technologies or train their workforce. Scaling up is often more difficult for informal firms who typically lack access to formal credit markets.
Unregistered firms can be unfair competition to formal enterprises, given the cost advantages associated with non-compliance with tax and labour laws. Widespread firm informality hence contributes to a misallocation of resources, limiting growth opportunities for formal productive firms, who bear the costs of complying with regulations, and potentially hindering productivity growth and the competitiveness of the economy.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
For workers employed informally, their status is generally associated with lower income stability and reduced earnings (Kolev, La and Manfredi, 2023[3]), (Groisman and Beccaría, 2015[4]), (Susmel and Bour, 2022[5]). Based on the 2024 household survey “Encuesta Permanente de Hogares”, informal workers earn on average 60% less than formal workers. A significant share of informal workers earns below the minimum wage (around USD 250 in August 2025) and even below nationally defined poverty lines (Figure 4.7). Individuals in the lowest income quintile are almost nine times more likely to have informal jobs compared to those in the top quintile (Figure 4.8). The income penalty tied to informality arises from both lower hourly wages and reduced working hours (Susmel and Bour, 2022[5]).
Informality is also associated with higher poverty. The incidence of poverty among informal workers is almost six times higher than among formal workers. Over half of informal workers live in poverty as defined by the National Statistics Institute (INDEC), and nearly one in four experiences extreme poverty (Figure 4.9).
Informality may hinder intergenerational social and economic mobility. For instance, students living in informal households are more likely to drop-out of school early (Figure 4.10). If school attendance is strongly influenced by parents’ labour market status, whether formal or informal, and educational attainment plays a critical role in determining future opportunities in the labour market, informality may contribute for the persistence of poverty across generations.
Finally, informality also affects the public sector as it reduces tax bases and hence undermines the government’s capacity to deliver high-quality public services, such as social protection, education, health, and infrastructure (Leal Ordóñez, 2014[6]).
The drivers of informality are manifold. Weak legal enforcement is an obvious necessary condition for widespread informality (World Bank, 2019[7]). One major reason why firms exploit the possibility given by weak enforcement to operate and employ informally is that informal employment is often less costly than creating formal jobs (Levy and Cruces, 2021[8]). Regulatory burdens, both in product and labour markets, increase legal and administrative compliance costs, raising incentives for business and employment informality (Susmel and Bour, 2022[5]). Several studies also found a strong relationship between high labour tax wedges and informality, or between the complexity of the tax system, high tax compliance costs, and informality (Vuletin, 2008[9]), (Leal Ordóñez, 2014[6]), (Susmel and Bour, 2022[5]). The design of social protection benefits can also play an important role.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
Note: Data refer to youth aged 6-24. (In)formal households are those where all working members are employed in the (in)formal labour market.
Source: OECD, 2021, Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database).
The Argentinian social protection system has evolved and expanded over many years and is one of the more sophisticated systems in Latin America. The following sections will detail the key elements of the Argentinian social protection system and analyse social protection coverage for formal and informal workers.
4.2.1. The pension system
Argentina’s main contributory pension system, the “Sistema Integrado Previsional Argentino” or SIPA, is a public and pay-as-you-go (PAYG) system and managed by the National Social Security Administration (ANSES). The SIPA pension system coexists with special pension regimes for the army, law-enforcement, university faculty, teachers, scientific researchers, magistrates, and foreign-service staff, each being governed by different parameters. Other schemes operating in parallel to SIPA further add to the fragmented nature of the system. Provinces and municipalities can manage their own pension schemes for provincial and municipal civil servants. All in all, more than 200 regimes coexist at the national, provincial and municipal levels. Consolidated spending on pensions amounted to 8.9% of GDP in 2023, of which 1.6% of GDP correspond to the provincial regimes. Spending on the national SIPA contributory regime reached 5.1% of GDP, of which almost 0.6% of GDP correspond to special occupational regimes (Figure 4.10).
To access a pension from the general SIPA contributory regime, women must be 60 years of age, and men must be at least 65. Moreover, an individual must have contributed to social security for at least 30 years to be eligible. Many exceptions exist for the 30-year contribution requirement, however. The most notable exception has been a series of pension moratoriums, which allowed those with incomplete contribution histories to buy their missing pension rights for a fraction of the missing contributions, thus effectively granting access to a full contributory pension to individuals with limited or no contributions. Benefits are equivalent to the minimum contributory pension, roughly one minimum wage. Moratoriums have occurred in 2005, and later in 2014, 2016, 2019, and 2023. The objective of these moratoriums was to extend coverage to informal workers with low contributions.
Some evidence shows that the influx of beneficiaries beginning in 2005 increased pension coverage, especially among informal workers, but it could also have contributed to increases in informal employment. In the aftermath of the 2005 pension moratorium, formal employment fell by 5 and 4.5 percentage points among men aged 65-68, and women aged 60-64, respectively (Bosch and Guajardo, 2012[10]). Today, about 62% of SIPA pension beneficiaries acquired their pension rights through pension moratoriums, with a fiscal cost of 2.4% of GDP (Figure 4.11). The last extension of the 2005 pension moratorium expired in March 2025. The pension moratoriums have blurred the line between contributory and non-contributory pensions, with benefit levels effectively calculated in a similar manner for those with few contributions and most of those with longer contribution histories.
Past attempts to make a clearer distinction between contributory and non-contributory benefits while ensuring a basic safety net for all have included the creation of a non-contributory benefit called “Pensión Universal del Adulto Mayor” (PUAM) in 2016. The PUAM guarantees a monthly income equivalent to 80% of the minimum contributory pension for all adults over 65, irrespective of their contribution history. In 2023, spending on this scheme reached 0.1% of GDP (Figure 4.11). The PUAM is expected to progressively replace benefits conceded under pension moratoriums. Simulations from ANSES show that if pension moratoriums are no longer extended, the PUAM will have fully replaced benefits from moratoriums by 2060, maintaining the same level of coverage while allowing for different benefit levels according to contribution histories.
Spending by regime as % of GDP, 2023
Source: OECD calculations based on data provided by ANSES.
In addition to these old-age benefits, a survivors' pension was introduced in the early 1990s, providing financial support to the dependents of deceased contributors. The survivors’ pension can be accumulated with income from formal employment, as well as family subsidies, old-age pension benefits, and other social assistance benefits. There is no minimum eligibility age for a survivors’ pension, and it is a permanent benefit. In September 2024, 83% of beneficiaries from a survivors’ pensions were women. Spending on survivors’ pensions reached 1.1% of GDP in 2023.
Following these changes, pensions have now reached an almost universal coverage. At the end of 2023, about 95% of the population aged 65 and above was covered by a pension. Moreover, automatic pension indexation mechanisms, modified on several occasions over the years, have led to higher replacement rates than in other countries in the region and the OECD average, at least up until 2022 (Figure 4.12).
However, progress in terms of coverage and adequacy has come at the expense of increasing fiscal costs, and this will only exacerbate as the population ages and more people retire. The pension system remains, in fact, the main recipient of public resources, exceeding expenditure on health and education. Some estimates expect pension spending to surge to 21% of GDP by 2065 without parametric changes (Izquierdo, Pessino and Vuletin, 2018[11]). Public spending on pensions is already similar to that of OECD countries, while the share of the older population remains significantly lower (OECD, 2025[12]), (Apella, 2022[13]). A pension reform, phased in gradually and as recommended in the OECD Economic Survey of Argentina 2025, could reduce pension spending pressures.
Note: LAC6 includes Argentina, Brazil, Chile, Colombia, Costa Rica and Mexico. In Panel A, data for 2021 except for MYS (2023); COL, CRI, PAN, PRI, JAM, BRA and MEX (2022); LCA, THA, GUY, SUR (2020); and VNM (2019).
Source: ILOstat, OECD Pensions at a glance database.
About two thirds of the National Social Security Administration (ANSES) spending is covered by current contributions, with the remaining funding coming mostly from earmarked general tax revenues and general budget resources (Figure 4.13). In fact, while pension coverage for individuals aged 65 and older is about 95%, the share of individuals paying social security contributions out of the active population is only about 56%. Moreover, around 30% individuals paying social security contributions are self-employed and autonomous workers whose contributions under a simplified tax regime called “monotributo” are substantially lower.
Source: Ministry of the Economy, ANSES.
4.2.2. The health care system
Argentina's healthcare system is characterised by a mix of public and private provision. Its basic pillar is a universally accessible and largely tax-financed public healthcare infrastructure, including public hospitals and primary health care centres run by governments across the national, provincial, and municipal levels. The services provided are comprehensive, ranging from basic care to specialised treatments, and are notably present in geographical locations deemed unprofitable by the private sector. Despite challenges in access and sometimes long wait times, demand for care in public hospitals is high as the public system is often sought after to treat complex pathologies. As an example, some of the best children’s hospitals are public ones and medical residencies in public hospitals are among the most prestigious ones. Almost 20% of Argentinians rely solely on the public non-contributory system for their medical coverage. The rest of the population benefits from some form of contributory health insurance, including through family members (INDEC, 2025[14]). Among the poorest households, the share of individuals relying solely on the public non-contributory system increases to more than 55%.
Complementing this public healthcare system, formal-sector workers are mandated to participate in one of approximately 300 sector-specific health insurance schemes, known as "obras sociales". These offer varying levels of coverage, are often administered by trade unions and have faced governance challenges (OECD, 2019[15]).
Another component of the public system is a non-contributory scheme dedicated to ensuring medical coverage beyond public healthcare facilities for the elderly, the “Programa de Atención Médica Integral” (PAMI). PAMI's purpose is to provide health and social benefits to retirees and pensioners of the national welfare system and the SIPA pension system. Even though PAMI is a non-contributory benefit, it is partly financed through social contributions from employers and employees, as well as pension beneficiaries.
Additionally, around 10-15% of Argentinians choose to purchase prepaid health plans with private providers, commonly referred to as "medicina prepaga". These cover access to private medical facilities.
The Ministry of Health plays a coordinating role and serves as the primary oversight body, responsible for the regulation, evaluation, and data collection across all three of these subsectors. A key function of the Ministry is to establish the compulsory medical programme including the benefits and medicines that all insurers are legally obliged to cover.
Financial interactions between the different parts of the system are complex and could be improved. Provinces and municipalities are responsible for financing most public healthcare centres including hospitals. While in principle designed for those without other medical coverage, in practice, some of the services offered by public facilities are also used by individuals with contributory or private insurance. A billing system is meant to recover some of the cost of services provided to the latter, but the fees billed are often below costs. Consolidated public spending on healthcare reached about 6% of GDP in 2023.
4.2.3. Family benefits
Argentina provides a range of family support benefits administered by ANSES, aimed at offering financial assistance through both contributory and non-contributory mechanisms. This dual structure seeks to balance broad social protection with incentives for formal participation in the labour market.
Contributory family benefits are means-tested allowances known as “Asignaciones Familiares”. They benefit households whose joint income is lower than 14 minimum wages, as long as no individual member earns more than 7 minimum wages. This includes income from formal labour, unemployment benefits, income from an old-age pension, among other revenue sources. Families of children with disabilities are always eligible regardless of household income. Several allowances are available. Some are recurrent monthly payments depending on the number of children, while others are temporary during pregnancy, or one-off subsidies for childbirth or child adoption, for example. For the lowest income range in the capital region, the monthly benefit amounts to approximately USD 45 (around 18% of a minimum wage, August 2025). “Asignaciones Familiares” are financed through employer contributions.
Non-contributory benefits comprise a conditional cash transfer programme known as “Asignación Universal por Hijo” (AUH). This monthly benefit can currently reach approximately USD 90 per child (around 36% of a minimum wage, August 2025) and is specifically targeted at families where parents are engaged in informal employment, inactive, or employed as domestic workers by households not paying social contributions. The AUH benefit is conditional: 80% is paid monthly and the remaining 20% accumulates and is released when it is proven that children have completed the health checks, the vaccination plan and the corresponding school year. Food programmes complement the AUH benefit, namely the “Plan 1000 días”, directed at pregnant women and mothers of children younger than three years-old, and “Prestación alimentar”, targeted at large families with children aged up to 17 years-old.
The non-contributory child allowances “Asignación Universal por Hijo (AUH)”, “Prestación alimentar”, and “Plan 1000 días”, are examples of well-targeted programmes, concentrated on the poorest 20% of the population (Figure 4.14Figure ). Moreover, evidence shows that, by being conditional on health controls and school attendance, the AUH benefit has successfully improved primary school completion rates (Poy et al., 2021[16]), (Gasparini, Albina and Laguingue, 2024[17]). Other studies have shown that the AUH has also contributed to reduce poverty (World Bank, 2024[1]). In 2023, public spending on non-contributory family allowances accounted for less than 1% of GDP. In a welcome move, such allowances have been significantly scaled up recently. AUH benefits almost doubled in real terms since the end of 2023, complemented with a 500% increase in the early childhood programme “Plan 1000 días”.
4.2.4. Unemployment insurance
Unemployment insurance is available for formally registered salaried workers who have been legally dismissed, either without just cause, due to external reasons, or because of company bankruptcy. To be eligible, workers must have contributed to the employment fund known as “Fondo Nacional de Empleo” (FNE) for a minimum of six months over the last three years before becoming unemployed. Individuals who are already receiving other social security benefits, excluding contributory pensions and family benefits, are excluded. The insurance also does not cover beneficiaries of existing employment programmes, individuals in internships, or those earning income from other activities.
Note: Data for 2020 except for Peru (2021) and Argentina (2014). 1. Adequacy of conditional cash-transfer benefits refers to the income support received as % of the household income.
Source: World Bank, Atlas of social protection: Indicators of resilience and equity (ASPIRE).
The benefit amounts to a monthly monetary payment of 75% of the highest wage of the last six months. The benefit cannot exceed the minimum wage, nor fall below 50% of the minimum wage (USD 250 in August 2025). It complements family allowances, and medical assistance coverage. The scheme also provides recognition of seniority for retirement purposes and grants access to a SUBE card with a social fare for public transport. Beyond these core provisions, the unemployment benefits program offers additional support, such as assistance for developing individual or collective productive ventures, with the option to receive all unemployment instalments as a single payment for entrepreneurial endeavours. It also facilitates the completion of primary and secondary education, provides vocational training, job search support, guidance for independent work, and offers specific training and integration support into the labour market.
The duration of the unemployment insurance varies, contingent on the length of time an individual has effectively worked and contributed to the national employment fund within the two or three years preceding their job loss. In any case, the duration of the unemployment benefit cannot exceed one year, except for individuals aged 45 and above who can extend the benefit for an additional six months. Unemployment insurance beneficiaries must accept suitable job offers from the Secretary of Labour, Employment, and Social security, and attend all required training sessions.
In December 2024, about 10.3% of the unemployed population received unemployment benefits. The low coverage in unemployment insurance is mainly explained by the high rate of informality, since only formally registered and contributing workers are eligible for the benefits, but also by the limited duration of the unemployment benefit. The average benefit amounted to less than 80% of the minimum wage. The cumulated expenditure on unemployment insurance at the end of the year was close to 0.04% of GDP and was financed exclusively though contributions to the National Employment Fund. The employment fund operates under a mixed financing model. Employer and employee contributions are the primary funding source, but the system also incorporates public funding through annual budget allocations and provincial contributions, alongside other revenue sources including investment income and fines (ANSES, 2025[18]).
4.2.5. Additional social protection programmes
Additional programs play an important role in the social protection system, including workplace accident insurance (“Aseguradoras de riesgos del trabajo”, ART), a contributory scheme financed entirely by employers to provide insurance in case there is an accident in the workplace. ART also provides advice to employers on how to reduce workplace risks.
4.2.6. Social protection coverage for formal and informal workers
Almost all formal workers in Argentina are covered by some kind of social protection, which marks the highest coverage ratio in Latin America (Figure 4.15Figure ). Among informal workers, however, less than half have had access to social protection benefits. This social protection gap is largely explained by the lack of access of informal workers to benefits such as employment-based health, disability and accident insurance and unemployment insurance. At the same time, compared to other Latin American countries, a considerable share of informal workers has access to contributory benefits, either through family members, or owing to past pension moratoriums.
Source: Estimates based on (OECD, 2021), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database).
Contributory benefits granted to informal workers through past pension moratoriums and family members are not specifically targeted towards poor and near poor informal workers (Figure 4.16). Targeting for non-contributory social programmes could also be improved as those also benefit a larger share of affluent informal workers than poor ones.
Note: Income classes are defined using absolute per capita per day incomes, as follows: poor: int’l dollar 6.85/day or less; near poor: int’l dollar 6.85-15/day; middle: int’l dollar 15-70/day; affluent: int’l dollar 70/day or more.
Source: Estimates based on (OECD, 2021), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database).
Given the progress made with respect to coverage, the main challenge for social protection in Argentina is to strengthen incentives for formalisation and to enhance the overall financial sustainability, particularly of the contributory pension system, whose ratio of beneficiaries to contributors is set to increase as the population ages. Argentina’s public expenditure is high in international comparison (Figure 4.17, Panel A). In particular, the fiscal burden of the social protection system is already considerable, mostly due to pension outlays (Figure 4.17, Panel B).
Note: In Panel A, data for 2023 except for BRA, CRI and THA (2022); and VNM (2021). LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: IMF World Economic Outlook database: April 2025, Ministerio Economía de la República Argentina.
The current financing of social protection benefits relies mostly on labour contributions paid by those who hold a formal job and their employers. These contributions generate a significant wedge between workers’ take-home pay and the cost of creating these jobs for employers. Given that these costs are not paid for informal jobs, this wedge can also be interpreted as the additional cost of formal job creation, relative to informal employment. The higher this tax wedge, the stronger the incentives for avoiding social contributions and opting for informal hiring instead. At about 44%, Argentina has the highest average labour tax wedge in Latin America, above most OECD countries (Figure 4.18). Almost all of this can be attributed to social security contributions. Looking at the detailed breakdown of contributions paid by workers and employers, contributions towards the pension system explain most of the non-wage labour cost (Table 4.1). Other non-wage costs, such as mandatory contributions to labour unions, for example, also add to the labour tax wedge.
Note: Information about single individual without children at the income level of the average worker. Data for Brazil is from 2019.
Source: OECD Labour taxation – average and marginal tax wedge decompositions database, Taxing Wages in Latin America and the Caribbean 2016, OECD Average annual wages, OECD Taxing Wages 2024 - Country details, national authorities, IBGE, Nubank, OECD Taxing Wages in Selected Partner Economies: Brazil, China, India, Indonesia and South Africa in 2019.
High pension contributions may be particularly discouraging for employees who are unlikely to contribute for long enough to receive a contributory pension, which is currently at least 30 years. Workers in the informal sector may therefore perceive social security contributions as a “formalisation tax” that has little bearing on any future pension benefits they may receive.
One way to reduce high non-wage labour costs among low-income earners would be to move towards a multi-pillar system of social protection, as described in Chapter 1 of this book. As argued in Chapter 1 of this volume, one promising way to reduce the formalisation disincentives from social security contributions and payroll taxes would be to exempt low-income ranges from these contributions as much as possible and replacing these resources with general tax revenues. This would shift some of the tax burden from social security contributions to other taxes and contributions, without raising the overall tax burden. Its success and feasibility, however, will ultimately hinge on the ability to create ways to finance the revenue losses from lowering social security contributions for those low-wage workers that are currently formal and paying contributions, even if this is by far the minority of workers in this income range.
Argentina already has many elements in place that would facilitate such a transition. At the same time, the social protection system is already quite developed and sophisticated, and also costly, so the additional tax revenues required to move to a system that would provide better formalisation incentives are not all that high, especially relative to the current cost of the system.
Preventing old-age poverty would become the role of the first universal pillar, which would essentially be the current basic pension PUAM. All elderly persons would have access to this basic pension, regardless of individual work histories in the formal and informal sectors, as is currently the case. This basic benefit, financed through general taxation, would be the only mandatory pension scheme for low-income earners, which would avoid raising the cost of formal job creation during working lives for these workers, given that the main focus in this income range is to avoid disincentives for formal work. Lowering social security contributions for low-income workers could also increase incentives for self-employed workers to obtain a higher-quality salaried job.
A second mandatory pillar would enrol those with higher incomes and greater contributory capacity. For these workers, the second pillar would complement basic benefits to improve benefit replacement rates and provide more consumption smoothing across working lives and retirement. This pillar would be financed through contributions and would provide more comprehensive benefit packages, based on the current general pension regime SIPA. Participation incentives should be maximised by tightly linking benefits to contributions even for those with short contribution periods, which requires untying eligibility from a minimum number of years of contributions. This would also create incentives for older workers to extend their working lives and support pension sustainability. A third pillar of voluntary individual savings could complement the basic and contributory pillars.
The contributory and non-contributory pillars should be seamlessly integrated within the pension system to ensure strong formalisation incentives for all income ranges and achieve the desired replacement rates for everyone in an effective way. A pension system with at least two complementary and well-integrated pillars would be able to achieve universal coverage while delivering adequate pension benefit levels and minimising disincentives for formal job creation.
Such a unified and universal multi-pillar system would allow streamlining the current array of available benefits. For example, special pension regimes could be integrated into the unified system, reducing the institutional fragmentation of the pension system and enhancing equity. Across the 13 provinces with independent pension regimes for their civil servants, replacement rates continue to be well above those of the SIPA general pension regime. A better alternative would be for provincial regimes to be gradually transferred to the proposed unified multi-pillar system, which would present scope for significant cost savings. Regarding special regimes within SIPA, the rationale for certain groups of workers to receive higher pension benefits than the rest of the system’s beneficiaries should be reviewed considering the risk exposure of these occupations into account and gradually eliminating those that are deemed unjustified. Moreover, survivor pensions granting access to old-age protection to partners of formal workers, with a high fiscal cost of 1.2% of GDP in 2023, could be integrated into the unified system by converting the survivor pension into some additional contribution history under the second pillar for the survivor, which would also allow rethinking the desired level of public expenditure on survivors’ pensions. Savings of at least 0.6% of GDP, or half the current cost of survivors’ pensions, could appear achievable given the disproportionate fiscal costs of this scheme today.
The cost of this reform would be limited by the fact that most informal workers nowadays already receive the PUAM pension, or benefit from a contributory pension, whose value is above the PUAM benefit, without having accumulated enough contributions, thanks to successive pension moratoriums. In the short-term, the fiscal cost of the proposed reform would therefore be limited to the foregone revenues from setting social security contributions close to zero for workers with low incomes.
As for other countries, the exact contribution rate for low-income workers and the income threshold where it would progressively increase should be subject to discussion. One could consider setting the employee contribution to the pension regime to zero for workers earning below the poverty line as defined by the National Statistics Institute (INDEC). Even if workplace insurance and some revamped unemployment insurance scheme were kept in place, this would result in total employee social security contributions below 6% for all workers earning below 1.2 minimum wages. Based on the labour income distribution of formal workers obtained from the household survey “Encuesta Permanente de Hogares”, this would concern about one-third of workers who are currently employed formally, and foregone revenues would amount to about 1.1% of GDP (Figure 4.19). From this low entry rate, social security contributions could rise gradually with wages, avoiding discontinuities that could create incentives for reporting a lower than actual income, or disincentives to move up the income ladder.
A reasonable medium-term objective could be for the basic universal pension benefit from the proposed first pillar to converge with the minimum wage or with the poverty line, as this would prevent low-income workers from falling into old-age poverty after retirement. The latter would imply increasing the basic benefit to 1.2 minimum wages, instead of the current 0.8 minimum wage of the PUAM benefit and would add an additional 0.1% of GDP to the fiscal cost of the proposed reform. As the PUAM progressively replaces past pension moratoriums and the number of beneficiaries of this basic universal pension benefit increases, the fiscal cost of increasing the benefit value would eventually reach 0.5% of GDP.
Source: OECD analysis based on microdata from the INDEC household survey “Encuesta Permanente de Hogares”, 4th quarter 2024.
Revenue losses from targeted reductions in social security contributions as described in this previous section have been estimated at about 1% of GDP, assuming that the minimum pension would converge with the poverty line and that half the current spending on survivors’ pensions could be rationalised.
Reforms on both the spending side and the revenue side of public accounts could be used to cover these revenue shortfalls. On the spending side, and starting with the pension system itself, cost reductions resulting from the integration of more generous special pension regimes into the unified system could be a first step. Previous OECD estimates have put the potential savings from aligning the conditions of special pension regimes for select professions with general pension rules at 1% of GDP, which would already be enough to cover the cost of the proposed solely on the expenditure side of public accounts (OECD, 2019[15]).
Additional spending restraint measures have been identified in the 2025 OECD Economic Survey of Argentina (OECD, 2025[12]). These include phasing out subsidies on fossil fuels, electricity, and water, as well as some transport subsidies while supporting low-income households through targeted benefits, a package that could result in savings on the order of 1% of GDP. The scope for additional efficiency gains from restructuring the public administration has been estimated at around +0.5% of GDP, despite significant progress already made in recent years.
On the tax side, several measures could be envisaged to raise additional revenues if the above-mentioned spending constraint were not sufficient (OECD, 2025[12]). Most of these include rethinking current tax expenditures, i.e. special tax treatment that reduces tax revenues relative to what they would otherwise be. One of them is to eliminate targeted corporate income tax regimes for specific sectors and regions, which could result in additional revenues on the order of 0.2% of GDP. Increasing the VAT base by limiting exemptions and reduced rates while supporting low-income households through targeted benefits could also lead to savings, estimated at +0.8% of GDP.
Moreover, an area where there is substantial scope to compensate a possible revenue shortfall from lower social contributions would be to expand the personal income tax base, whose basic deduction is so high that there is ample scope for lowering it without affecting vulnerable households (Figure 4.20). The personal income tax basic allowance exceeds the average wage and results in only about 10% of workers paying personal income taxes in 2021, compared to 51% in OECD countries (Lodola, Moskovits and Zack, 2024[19]).
Source: OECD Taxing Wages 2024.
The personal income tax base could also be increased by limiting tax deductions such as those for mortgage interest payments and private healthcare expenses. Given the high basic deduction, these specific deductions currently benefit only those at the top of the income distribution and hence have regressive distribution effects. In addition, Argentina has a PIT exemption for specific professions, which is highly unusual. Estimates put foregone PIT revenues from such deductions and exemptions at around 5% of GDP (Lodola, Moskovits and Zack, 2024[19]). These two features are part of the explanation why Argentina’s personal income tax revenues amounted to 2.5% of GDP in 2022, compared to 8.6% in OECD countries (Figure 4.21).
Source: OECD Revenue Statistics.
Informality is a complex phenomenon that is related to many factors. This chapter focuses on how social protection mechanisms, and especially their financing, can influence the incentives for formal job creation. Other factors also matter, and these include weak legal enforcement, the complexity of the overall tax system and regulatory burdens, both in product and labour markets, low educational attainments and skills. Overcoming the challenges of informal activity requires a combination of policies to tackle both employment informality and business informality.
With respect to social protection, a first key consideration is that Argentina’s comprehensive social protection system has achieved an almost universal pension coverage and features several well-targeted cash transfers that have been effective in improving incomes and opportunities for those in need. At the same time, the current system is fragmented and presents scope for strengthening the efficiency of public spending on social protection. Beyond that, there is substantial scope for improving incentives for formal job creation. The high social security contributions that finance the system raise the cost of creating these formal jobs, which may be one of the reasons why around half of employment in Argentina is in the informal sector. At about 44%, Argentina has the highest average labour tax wedge in Latin America, above most OECD countries. Reducing these high non-wage labour costs for low-wage earners with salaries close to the minimum wage may create substantial benefits for formalisation and could be financed through both spending and revenue measures, many of which would also reduce inequities and improve incentives in other policy areas. In the long-term, moving towards a multi-pillar system with better incentives would probably have additional positive effects on public revenue, given that eventually more economic activity would move into the formal sector and more workers would find opportunities to progressively move up the job ladder.
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