Pension design with a large informal labor market: Evidence from Chile

Clément Joubert ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper investigates empirically the fiscal and welfare trade-offs involved in designing a pension system when workers can avoid participation by working informally. A dynamic behavioral model captures a household's labor supply, formal/informal sector choice and saving decisions under the rules of Chile's canonical privatized pension system. The parameters governing household preferences and earnings opportunities in the formal and the informal sector are jointly estimated using a longitudinal survey linked with administrative data from the pension system's regulatory agency. The parameter estimates imply that formal jobs rationing is limited and that mandatory pension contributions play an sizeable role in encouraging informality. Our policy experiments show that Chile could achieve a reduction of 23% of minimum pension costs, while guarantying the same level of income in retirement, by increasing the rate at which the benefits taper off.

Keywords: pension reform; informality; segmentation (search for similar items in EconPapers)
JEL-codes: E26 J24 J26 O17 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2014-03-01
New Economics Papers: this item is included in nep-age, nep-iue, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Pension Design with a Large Informal Labor Market: Evidence from Chile (2014)
Working Paper: Pension design with a large informal labor market: evidence from Chile (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:14-020

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