Social Security Privatization Reform and Labor Markets: The Case of Chile

We analyze the way in which social security privatization reform affects labor market outcomes. We develop a model of the labor market where we assume that, as is the case in most emerging markets, a formal and an informal sectors coexist side by side. According to our model, a social security reform that reduces the implicit tax on labor in the formal sector, will result in an increase in the wage rate in the informal sector and will have an undetermined effect on aggregate unemployment. Results from simulation exercises suggest that in the case of Chile the reforms resulted in an increase in informal sector wages of approximately 2.0%. These results also suggest that the reforms made a positive, but small, contribution to the reduction of Chile's aggregate of unemployment.

Labor Market Distortions and Structural Adjustments in Developing Countries

The purpose of this paper is to provide a typology of different labor market configurations and investigate how two major structural adjustment policies, namely a trade liberalization reform and the relaxation of capital controls, affect the level of aggregate employment and the rate of unemployment. We consider a number of models starting from the traditional Australian approach. We then analyze a multiple sectors intertemporal setting and a model with uncertainty and search. We identify situations under which structural adjustment results in unemployment.

Economic Reforms and Labor Markets: Policy Issues and Lessons from Chile

This paper deals with the reform to labor market regulation implemented by Chile during the last twenty years. We concentrate on the reform to job security, on the decentralization of the wage bargaining process, and on the reduction in payroll taxes. Our interest is to understand to what extent these reforms helped reduce Chile's rate of unemployment from European' to U.S' levels. We argue that the reduction of payroll taxes (within the context of the social security reform), and the decentralization of bargaining increased labor market flexibility and contributed to the reduction of unemployment. Our analysis suggests that the reform on job security had no significant effect on the aggregate rate of unemployment.

Do Individual Accounts Postpone Retirement: Evidence from Chile

Postponing retirement will become increasingly important as a means to increase the labor force, its output and old age security, as populations age. Recent research has focused on incentives stemming from the social security system that influence the worker’s decision to retire. Defined benefit systems (both public and private) often contain penalties for postponing access to pensions or continuing to work while receiving a pension. In contrast, the tight link between contributions and accumulations and the actuarial conversion of accumulations into pensions in privately managed defined contribution systems may lead workers to postpone pensions or to continue working after withdrawals begin. The experience of Chile, which implemented its new system in 1982, offers an opportunity to test if the change in incentives has indeed produced the expected change in retirement behavior. Using probit analysis of household survey data from 1960 to 2002, we estimate the impact of the pension reform on the probability of 1) becoming a pensioner and 2) dropping out of the labor force, for older workers. We find strong effects of the new system on both propensities, in the aggregate and at the individual level after controlling for individual and macro-economic variables. In particular, restricted access to early pensions and the exemption of pensioners from the pension payroll tax appear to exert a powerful effect on labor force participation rates.

Crowd-out, Adverse Selection and Information in Annuity Markets: Evidence from a New Retrospective Data Set in Chile

Annuitization is often considered a socially desirable payout mode from pension plans, because it provides a lifelong income stream and therefore ensures that retirees will not run out of money. However, annuitization is rare in most countries. This project examines workers’ choices during the payout stage in Chile, the only country that has had mandatory personal accounts long enough to have had substantial experience with payouts. Upon retirement, workers in Chile have limited options for payouts: they must either annuitize or take gradual withdrawal. Two-thirds have annuitized. We expect that retirees are less likely to annuitize if their accumulation finances a pension in the vicinity of the minimum pension, whose value is guaranteed by the state. In that case, publiclyfinanced longevity insurance is likely to crowd out private annuity insurance. We expect that retirees with health problems are also less likely to annuitize, possibly leading to adverse selection. Finally, we expect that individuals with greater risk aversion, smaller time preference and better knowledge about the system are more likely to annuitize. A new retrospective data set from Chile yields evidence that is broadly consistent with these hypotheses.

Social Security Rules and Labor Force Participation of Older Workers: Evidence from Chile

Recent research has argued that incentives stemming from social security systems influence the worker’s decision to retire. The experience of Chile, which radically changed its system in 1981, offers an opportunity to test this hypothesis. The new system tightened access to early pensions, replaced an actuarially unfair defined benefit plan with an actuarially fair defined contribution plan, exempted pensioners from the pension payroll tax and allowed widows to keep their own pension in addition to their survivor’s benefit. Although the old system is being phased out, since 1981 the two systems have co-existed. Using probit analysis of the behavior of a retrospective sample of new and old system affiliates, we estimate the impact of the new social security rules on the probability of dropping out of the labor force, for older workers. We find large effects. Age of pensioning has been postponed. Labor force participation is much higher among affiliates of the new system compared with the old, especially for pensioners and women. This is not simply due to selection: Aggregate participation rates have increased as the new system’s share of total affiliates has risen.

Women in the LAC Labor Market: The Remarkable 1990’s

We examine levels and trends of labor market outcomes for women in the 1990’s using household survey data for 18 Latin American countries covering several years per country. The outcomes we analyze include labor force participation rates, the distribution of employment of women across sectors of the economy (formal versus informal) and across industries (agriculture versus non-agriculture), unemployment, and earnings. Overall we document substantial progress made by women in many areas. The gender wage gap is closing steadily in Venezuela, Costa Rica, Brazil and Uruguay, while Colombian women now enjoy higher earnings than those of men. Women’s share of household labor earnings rose from 28% in the early 1990’s to 30% in the late 1990’s. Regarding the quality of jobs, we examine self-employment and employment in small forms as possible indicators of employment in the informal sector. There is no evidence of a systematic increase in self-employment nor in employment in small firms, and contrary to findings by the ILO, we find that the share of female employment accounted by domestic servants did not increase in the 1990’s. Perhaps the salient development of the 1990’s for women in LAC countries was the brisk-paced, secular rise in their labor force participation rates. We examine this development from several angles. We explore the Singh-Goldin-Durand hypothesis that women’s work status changes with economic development. Mammen and Paxson (2000) examine this hypothesis using data for 90 countries, and find that female participation of 45-59 year olds follows a U-shaped profile, with rates rising with GDP per capita increases above $3000. We find that female participation in LAC does not follow the Mammen-Paxson pattern. Next, we examine the role of schooling in explaining the increase in female labor force participation in LAC countries. We find that increases in female schooling account for 30% of the overall increase in female participation rates. The remaining 70% is explained by increases in participation rates at given schooling levels. Finally, we analyze the role of wages, especially the returns to different schooling levels, as a partial explanation for the pattern of changes in labor force participation rates. All of these findings suggest a fair degree of change in the role of women within households and in the labor market. We conclude that the macro economic picture of stagnation for LAC in the 1990s masks non-trivial developments in the division of labor and time allocation by gender.http://deepblue.lib.umich.edu/bitstream/2027.42/39885/2/wp500.pd

The gender impact of pension reform : a cross-country analysis

Pension systems may have a different impact on gender because women are less likely than men to work in formal labor markets and earn lower wages when they do. Recent multipillar pension reforms tighten the link between payroll contributions and benefits, leading critics to argue that they will hurt women. In contrast, supporters of these reforms argue that it will help women by the removal of distortions that favored men and the better targeted redistributions in the new systems. To test these conflicting claims and to analyze more generally the gender effect of alternative pension systems, the authors examine the differential impact of the new and old systems in three Latin American countries-Argentina, Chile, and Mexico. Based on household survey data, they simulate the wage and employment histories of representative men and women, the pensions they are likely to generate under the new and old rules, and the relative gains or losses of men and women because of the reform. The authors find that women do accumulate private annuities that are only 30-40 percent those of men in the new systems. But this effect is mitigated by sharp targeting of the new public pillars toward low earners, many of whom are women, and by restrictions on payouts from the private pillars, particularly joint annuity requirements. As a result of these transfers, total lifetime retirement benefits for women reach 60-80 percent those of men, and for"full career"women they equal or exceed benefits of men. Also as a result, women are the biggest gainers from the pension reform. For women who receive these transfers, female/male ratios of lifetime benefits in the new systems exceed those in the old systems in all three countries. Private intra-household transfers from husband to wife in the form of joint annuities play the largest role.Pensions&Retirement Systems,Public Health Promotion,Health Monitoring&Evaluation,Population&Development,Gender and Development,Health Monitoring&Evaluation,Pensions&Retirement Systems,Population&Development,Agricultural Knowledge&Information Systems,Anthropology

Women in the LAC Labor Market: The Remarkable 1990’s

We examine levels and trends of labor market outcomes for women in the 1990’s using household survey data for 18 Latin American countries covering several years per country. The outcomes we analyze include labor force participation rates, the distribution of employment of women across sectors of the economy (formal versus informal) and across industries (agriculture versus non-agriculture), unemployment, and earnings. Overall we document substantial progress made by women in many areas. The gender wage gap is closing steadily in Venezuela, Costa Rica, Brazil and Uruguay, while Colombian women now enjoy higher earnings than those of men. Women’s share of household labor earnings rose from 28% in the early 1990’s to 30% in the late 1990’s. Regarding the quality of jobs, we examine self-employment and employment in small forms as possible indicators of employment in the informal sector. There is no evidence of a systematic increase in self-employment nor in employment in small firms, and contrary to findings by the ILO, we find that the share of female employment accounted by domestic servants did not increase in the 1990’s. Perhaps the salient development of the 1990’s for women in LAC countries was the brisk-paced, secular rise in their labor force participation rates. We examine this development from several angles. We explore the Singh-Goldin-Durand hypothesis that women’s work status changes with economic development. Mammen and Paxson (2000) examine this hypothesis using data for 90 countries, and find that female participation of 45-59 year olds follows a U-shaped profile, with rates rising with GDP per capita increases above $3000. We find that female participation in LAC does not follow the Mammen-Paxson pattern. Next, we examine the role of schooling in explaining the increase in female labor force participation in LAC countries. We find that increases in female schooling account for 30% of the overall increase in female participation rates. The remaining 70% is explained by increases in participation rates at given schooling levels. Finally, we analyze the role of wages, especially the returns to different schooling levels, as a partial explanation for the pattern of changes in labor force participation rates. All of these findings suggest a fair degree of change in the role of women within households and in the labor market. We conclude that the macro economic picture of stagnation for LAC in the 1990s masks non-trivial developments in the division of labor and time allocation by gender.labor force participation, earnings, women, Latin America