When Formality Is Costly and Informality Is Legal: Understanding the Administrative Burden of Social Insurance System Design in Low and Middle‐Income Countries

ABSTRACT This paper looks at the extent to which the institutional framework for social insurance (SI) constrains access to contributory schemes, with data from Egypt. We use nationally representative microdata to test how the design results in the exclusion of specific categories of workers. Our findings show that the country witnessed a decline in SI coverage among regular wage workers, despite stipulations of mandatory coverage for this group. The analysis highlights two reinforcing dynamics: legal informality, where workers are excluded by design from joining the system; and costly formality, where workers and employers are deterred by rising contribution floors. The administrative burden relating to conditions of enrollment, contribution costs, and benefit design disincentivize both employers and employees to contribute to the system. The paper also shows that the burden is gendered, as women encounter higher compliance costs due to fragmented work trajectories and informal employment spells.