Social security reforms, retirement and sectoral decisions

Bruno Ricardo Delalibera, Pedro Ferreira and Rafael Machado Parente

No 842, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: In many countries, the regulations governing public and private pension systems, hiring procedures, and job contracts differ. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a general equilibrium life-cycle model with three sectors - private formal, private informal and public - and endogenous retirement. In a model calibrated to Brazil, we quantitatively assess the long-run effects of reforms being discussed and implemented across countries. Among them, we study the unification of pension systems and increasing the minimum retirement age. We find that these reforms affect the decision to apply to a public job, the profile of savings over the life cycle, and informality. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit

Date: 2024-05-29
New Economics Papers: this item is included in nep-age and nep-dge
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Working Paper: Social Security Reforms, Retirement and Sectoral Decisions (2025)
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