Pension Design with a Large Informal Labor Market: Evidence from Chile

Clément Joubert ()

No 8211, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 guaranteeing the same level of income in retirement, by increasing the rate at which the benefits taper off.

Keywords: informality; pensions (search for similar items in EconPapers)
JEL-codes: E21 E26 J24 J26 O17 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2014-05
New Economics Papers: this item is included in nep-age, nep-dem, nep-iue, nep-lab, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://docs.iza.org/dp8211.pdf (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp8211

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().