In 2002, the Mexican government began a tremendous financial effort to
provide health insurance, Seguro Popular (SP), to the 50 million uninsured in Mexico.
In doing so, the states and municipalities offered virtually free health insurance to
uncovered self-employed and informal salaried workers substantially altering the
incentives for workers and firms to operate in the formal economy. We take advantage
of the staggered implementation of the program across municipalities to estimate the
effects of the SP in the labor market. We find that the SP had a negative effect in the
creation of formal jobs, especially in small and medium sized firms. According to our
estimates, had the program not been in place, 31.000 more employers and 300.000 new
formal jobs should have been registered with Mexican social security. These represent
3.8% and 2.4% of the stock of registered employers and employees in 2002 when the
program started.