Incentive Effects of Risk Pooling, Redistributive and Savings Arrangements in Unemployment Benefit Systems: Evidence from a Job-Search Model for Brazil

We develop a model of job search and use it to assess the effects that the Brazilian unemployment benefit system has on exit rates from unemployment. In our setup, unemployed workers receive job offers from the formal and informal sectors and decide whether to accept them or wait. Only jobs in the formal sector come with unemployment benefits. After incorporating the rules of the Brazilian unemployment benefit system we estimate the parameters of the model using its labor force survey (a rotating panel). Key parameters determining model dynamics are: the distribution of wage offers for each individual; the observed probabilities of separation from formal and informal jobs; and the unobserved job offers arrival rates. The results show that, in general, workers eligible for unemployment benefits also have higher offer rates – their unobserved characteristic are correlated with more job opportunities. Policy simulations ten suggest that the risk pooling and savings component of the unemployment benefit system have small effects on the probabilities of remaining unemployed. The main effect of both schemes is to reduce transitions into informal jobs. The effects are larger for unskilled workers, particularly women. The simulations also show that current effects are conditioned on the design of the system. More generous unemployment benefits, for instance, could substantially increase the share of workers who remain unemployed. In addition, asking workers to contribute to finance unemployment benefits would reduce formal employment.labor market transitions, unemployment insurance, social protection, job-search models, structural estimations

Carrots and sticks for new technology: Abating greenhouse gas emissions in a heterogeneous and uncertain world

Many governments use technology incentives as an important component of their greenhouse gas abatement strategies. These “carrots” are intended to encourage the initial diffusion of new, greenhouse-gas-emissions-reducing technologies, in contrast to carbon taxes and emissions trading which provide a “stick” designed to reduce emissions by increasing the price of high-emitting technologies for all users. Technology incentives appear attractive, but their record in practice is mixed and economic theory suggests that in the absence of market failures, they are inefficient compared to taxes and trading. This study uses an agent-based model of technology diffusion and exploratory modeling, a new technique for decision-making under conditions of extreme uncertainty, to examine the conditions under which technology incentives should be a key building block of robust climate change policies. We find that a combined strategy of carbon taxes and technology incentives, as opposed to carbon taxes alone, is the best approach to greenhouse gas emissions reductions if the social benefits of early adoption sufficiently exceed the private benefits. Such social benefits can occur when economic actors have a wide variety of cost/performance preferences for new technologies and either new technologies have increasing returns to scale or potential adopters can reduce their uncertainty about the performance of new technologies by querying the experience of other adopters. We find that if decision-makers hold even modest expectations that such social benefits are significant or that the impacts of climate change will turn out to be serious then technology incentive programs may be a promising hedge against the threat of climate change.climate change, technology policy, uncertainty, agent-based modeling, exploratory modeling, social interactions

lmplicit Pension Debt in the Middle-East and North Africa: Magnitude and Fiscal lmplications

This paper breaks down the contingent liability of a mandatory pension system into two components: the implicit pension debt and the pay-as-you-go asset. It then estimates these two components for 12 pension schemes across six MENA countries and presents international comparisons. The results show that implicit pension debts are large (in the order of 50% to 100% of GDP), often higher than the explicit public debt. At the same time, the large majority of pension schemes have negative pay-as-you-go assets. Under these circumstances, it is misleading to consider the implicit pension debt a contingency, as the government will have to finance it with almost certainty. In the absence of a default the fiscal impacts are expected to be large. The paper recommends including in the assessment of public debt sustainability the implicit liabilities of the mandatory pension system and the pay-as-you-go asset.Pensions, implicit pension debt, fiscal policy, government bonds, contingent government liabilities

Conservation Policies and Labor Markets: Unraveling the Effects of National Parks on Local Wages in Costa Rica

Despite the global environmental benefits of increasing the amount of protected areas, how these conservation policies affect the well-being of nearby individuals is still under debate. Using household surveys with highly disaggregated geographic references, we explored how national parks affect local wages in Costa Rica and how these effects vary within different areas of a park and among different social groups. We found that a park’s effects on wages vary according to economic activity and proximity to the entrance of the park. Wages close to parks are higher only for people living near tourist entrances. Workers close to entrances are not only employed in higher-paid activities (nonagricultural activities) but also receive higher wages for these activities. Agricultural workers, however, are never better off close to parks (neither close to or far from the entrances). Also, workers close to parks but far away from tourist entrances earn similar or lower wages than comparable workers far away from parks. Our results are robust to different econometric approaches (OLS and matching techniques). The location of national park entrances and the possibility that agricultural workers can switch to higher-paid service activities near tourist entrances may be important tools for helping local workers take advantage of the economic benefits of protected areas.wages, national parks, matching, labor markets, conservation policies, parks, poverty

Social protection in Latin America : achievements and limitations

Social protection systems in Latin America have been transformed in the past two decades. Until the 1980s, those who were not covered by the social security arrangements available primarily in the urban formal sector received little public assistance beyond universal subsidies for some food or fuel purchases. Since the 1990s, the introduction of non-contributory social insurance programs (including"social pensions") and conditional cash transfers has substantially extended the coverage and improved the incidence of social assistance. However, the organic growth of subsidized social assistance in parallel to the older social insurance system, financed largely out of taxes on formal sector employment, has led to a dual system that is neither properly equitable nor efficient. The twin challenges that now face social protection in Latin America are to better integrate those two halves of the system, and to develop programs that promote sustainable self-reliance, by moving from"safety nets"to"opportunity ropes."Rural Poverty Reduction,Services&Transfers to Poor,Debt Markets,Insurance Law,Health Monitoring&Evaluation

On the financial sustainability of earnings-related pension schemes with"pay-as-you-go"financing and the role of government indexed bonds

In this paper the authors reconsider the idea of an earnings-related pension system with reserves invested in indexed government bonds as a mechanism to both ensure financial sustainability and improve security. They start by reviewing the characterization of the sustainable rate of return of an earnings-related pension system with pay-as-you-go financing. The authors show that current proxies for the sustainable rate, including the Swedish"gyroscope,"are not stable and propose an alternative measure that depends on the growth of the buffer-stock and the pay-as-you-go asset. Using a simple one-sector macroeconomic model that embeds a notional account pension system they then show how GDP indexed government bonds, if combined with the right measure for the sustainable rate of return on contributions, could be used to generate a sustainable and secure earnings-related pension system, without becoming a fiscal burden. The proposal is particularly attractive for countries considering reforms to earnings-related systems that have accumulated a large implicit pension debt. In this case, the government bonds allow the financing of this debt in a transparent way. The proposed mechanism can also facilitate the transition to a fully-funded pension system when the government bonds are allowed to be traded.Economic Theory&Research,Technology Industry,Pensions&Retirement Systems,Economic Growth,Population Policies

Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil

This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal Vs. informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social security system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social security / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian SI system today might generate distortions (lower savings rates and less formal employment) that increase the costs of the system and might generate regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.,Labor Markets,Labor Policies,Pensions&Retirement Systems,Emerging Markets

How Mandatory Pensions Affect Labor Supply Decisions and Human Capital Accumulation? Options to Bridge the Gap between Economic Theory and Policy Analysis

Mandatory pension systems can have a negative impact on individual savings and labor supply decisions. In particular, defined benefit pension schemes that are not actuarially fair, can create incentives for early retirement, and therefore, reduce labor supply and the stock of human capital. After a review of frequently applied approaches to assess the incentives generated by a pension system, the paper develops an indicator to predict the age-specific retirement probabilities induced by a particular pension system given heterogeneous individual preferences. The paper then describes how this indicator could be used to project the size of the labor force by gender, age and skill level, and correspondingly, the dynamics of human capital accumulation. Finally, the paper develops a set of life-cycle income measures to assess how the pension system affects decisions regarding the supply of labor in the public and private sectors. The methods are illustrated in the case of Morocco.life cycle models, labor supply, human capital, retirement policies, job and occupational mobility

Assessing the distortions of mandatory pensions on labor supply decisions and human capital accumulation : how to bridge the gap between economic theory and policy analysis

Mandatory pension systems play a major role in individual savings and labor supply decisions. In particular, it is well known that defined benefit pension schemes, which are not actuarially fair, can create incentives for early retirement and therefore reduce labor supply and the stock of human capital in a given country. This is an important policy issue in middle-income countries, with still low participation rates in the labor force, where the"window"opened by the demographic transition is already closed or will close in the near future. In these countries, policies to stimulate private sector growth, competitiveness, and employment creation should be accompanied by policies that increase labor force participation, raising the ratio of active to inactive population and therefore the potential for higher income per capita growth. Unfortunately, the analytical tools developed to assess pension reform options tend to focus on the financial sustainability of the schemes and the adequacy of benefits. Little attention is given in practice to the social costs imposed by distortions on the supply of labor. In part, this is given by the lack of analytical tools that, in the context of limited information regarding individual preferences and behavior, can be used to assess the magnitude of these distortions. This paper develops methodologies that can bridge the gap between economic theory and the practices of pension policy personnel under conditions of deep uncertainty regarding the variables driving individual behavioral responses to policy changes. First, the paper develops an indicator to predict the age-specific retirement probabilities induced by a particular pension system, given heterogeneous individual preferences over risk, consumption, and leisure. The paper then describes how this indicator can be used to project the size of the labor force by gender, age and skill level and therefore the dynamics of human capital accumulation. The integration of these two analytical tools allow us to show the impact of a particularpension reform proposals on the dynamics of labor supply, human capital and, given the dynamics of capital and total factor productivity, economic growth. Furthermore, the paper develops a set of life-cycle income measures for typical individual paths that allow us to measure the contribution of segmented pension schemes to the segmentation of the labor market. The methods are applied to the case of Morocco.,Labor Markets,Labor Policies,Pensions&Retirement Systems,Debt Markets

The Financial Crisis and Mandatory Pension Systems in Developing Countries: Short- and Medium-term Responses

financial crisis, pensions, financial risks, labor market risks