Alejandra Cox Edwards

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 Chiles aggregate of unemployment.

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

Rates of return to education in Brazil: Do labor market conditions matter?

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.

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

Abstract This paper accomplishes two tasks. First, new estimates of rates of return to education for Brazil in 1989 are presented. The rate of return to an additional year of schooling is estimated to range between 12.8 and 15.1%. Less restrictive parameterizations reveal that the earnings-education profile is convex. Second, the customary Mincerian methodology used to estimate the rate of return from schooling is modified to capture the wage effects of changes in the educational structure of the labor force. This is accomplished by including labor market condition controls in earnings equations. The results suggest that workers with less than university education compete with each other (are substitutes) while workers at the upper end of the educational spectrum are complements to those with less education.

The Gender Impact of Social Security Reform

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.

The Impact of Private Participation on Disability Costs: Evidence from Chile

As populations age and revenues diminish, government and private pension funds around the world are facing insolvency. The looming social security crisis is especially dire for women, who live longer than men but have worked less in the formal labor force. This groundbreaking study examines alternative social security systems and their disparate impacts on men and women. Emphasis is placed on the new multi-pillar systems that combine a publicly managed benefit and a mandatory private retirement saving plan. The Gender Impact of Social Security Reform compares the gendered outcomes of social security systems in Chile, Argentina, and Mexico, and presents empirical findings from Eastern and Central European transition economies as well as several OECD countries. Women’s positions have improved relative to men in countries where joint pensions have been required, widows who have worked can keep the joint pension in addition to their own benefit, the public benefit has been targeted toward low earners, and women’s retirement age has been raised to equality with that of men. The Gender Impact of Social Security Reform will force economists and policy makers to reexamine the design features that enable social security systems to achieve desirable gender outcomes.

Impact of Social Security Reform on Labor Force Participation Rates of Pensioners and Nonpensioners: Evidence from Chile

Social security systems in many countries face problems of high and escalating disability costs. This paper analyzes how disability costs have been controlled in Chile. The disability insurance system in Chile is much less well-known than the pension part, but it is equally innovative. It differs from traditional public disability insurance in two important ways: 1) it is largely pre-funded, sufficient to cover a lifetime disability annuity and 2) the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit and have a direct pecuniary interest in controlling costs. We hypothesize that these procedures and incentives will keep system costs low, by cutting the incidence of successful disability claims. Using the Cox proportional hazard model based on a retrospective sample of new and old system affiliates (ESP 2002), we conclude that observed behavior is broadly consistent with this hypothesis. Disability hazard rates are only 20-35% as high in the new system as in the old, after controlling for other co-variates. Furthermore, analysis of mortality rates among disabled pensioners (using probit and proportional hazard models) suggests that the new system has accurately targeted those with more severe medical problems.

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

Recent research argues that pension systems influence the workers decision to retire. The experience of Chile, which radically changed its pension system in 1981, offers an opportunity to test this hypothesis. Chile shifted from a defined-benefit plan to an actuarially fair defined-contribution plan, exempted pensioners from the pension payroll tax, and tightened early retirement restrictions. We estimate the impact of the 1981 reform on the probability of dropping out of the labor force. We find large effects: Labor force participation rose dramatically among older men who approached retirement age after 1981, in contrast to the decline observed before.

Labor Market Dynamics During a Period of Structural Change: California inEarly 1990s

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.

Monetarism and liberalization : the Chilean experiment

This paper contributes to the literature on labor market dynamics in four ways. First, unlike most of the existing literature, it uses the Survey of Income and Program Participation (SIPP). This panel survey, with a 32-month window of observation, allows a more precise measure of employment flows than other data sources. It was found that one out of three workers experiences a job transition during the observation period. Second, it focuses on the state of California during an economic cycle. According to these estimates, the net decline in employment represents just 2.6 percent of all job rotations (separations offset by accessions), and gross job flows were as important during the downturn as they were during the economic expansion. Third, it estimates gross flows by sector, and finds significant variation in gross flows relative to employment across sectors of economic activity. Fourth, it examines the coexistence of cyclical and structural changes of California in the early 1990s. The results suggest a labor market link between structural changes and economic cycles. Copyright 2000 Gatton College of Business and Economics, University of Kentucky.