Estimation and Analysis of Revenues Lost in Social Security in the Informal Sector

Today, the informal employees are responsible for large shares of employment rate in developing countries including Iran. The informal sector, due to either hiding from government controls or lack of government confrontation because of its importance in job creation, is of significant impact on reduction of revenues in Social Security Organization. Since the major revenues of social security are based on receiving premiums in Iran, the increasing share of the informal sector in one region reduces number of insured people, and lessens revenues of the social security organization. Thus, if parts of informal sector employees can be shifted to the formal sector by government support, this shift will have a positive impact on social security revenues. This paper examines the shift of informal employment into formal employment in the urban areas of Kurdistan province and its effect on social security revenues. The results show that the highest shares of social security revenues are lost in construction, industry, wholesale and retail sale sectors. Therefore, social security revenues will increase considerably through shifting informal employment into formal employment in these sectors.