Alvaro Forteza

Labor Market ‘Rigidity’ and the Success of Economic Reforms Across More Than 100 Countries

Abstract This paper shows that labor market policies and institutions have an impact on the effectiveness of economic reform programs. Countries with relatively ‘rigid’ labor markets experienced deeper recessions before adjustment and slower recoveries afterwards. Minimum wages and mandatory benefits are not detrimental to growth, but the relative size of organized labor, in government and overall, appear to be crucial. Labor market rigidity thus seems to be relevant for political reasons, more than for economic reasons. These findings suggest that insufficient attention has been paid to vocal groups who stand to lose from economic reforms.

Work History and the Access to Contributory Pensions: The Case of Uruguay

Incomplete and highly fragmented work histories threaten to leave many contributors of the pension schemes in Latin America without the minimum pension guarantee or even without access to the ordinary pension. We propose a methodology to assess this risk, identify vulnerable groups and study potential determinants of the history of contributions using information from the work history records of the social security institutions. We apply this methodology to the largest social security institution of Uruguay, the Banco de Prevision Social, and show that the majority of contributors to this institution might not comply with the minimum number of years of contribution that is currently required to access an ordinary pension when they reach the retirement age.

The Wage Bargaining Structure and the Inflationary Bias

The failure of some disinflation programs has been associated with their inability to bring wages down with other nominal variables. This issue is analyzed in a model with many trade unions. The inflationary bias that characterizes the one-shot game equilibrium is an increasing function of the gap between the unions and the government real wage targets. This gap, in turn, depends on whether sectoral unions cooperate or set wages separately. A non-inflationary cooperative equilibrium can be sustained as a subgame perfect and weakly renegotiation proof equilibrium in the infinitely repeated game, provided the unions are sufficiently “patient.”

Redistribution, insurance and incentives to work in Latin-American pension programs

We present a new database of social security indicators for 11 Latin-American countries designed to show how much they promise to pay in return to contributions. These are based on micro-simulations according to existing norms. We use response-surface analysis to characterize simulation results. Our results indicate that most programs are progressive. The length of service (LOS) has a strong impact on the expected returns to contributions. In several programs, the expected rates of return exhibit striking discontinuities in the LOS, mostly due to vesting period conditions. This implies these programs may be exacerbating income risk.

The Contribution of Government Transfer Programs to Inequality: A Net-Benefit Approach

The contribution of government transfer programs to inequality is often assessed by analyzing to what extent the benefits paid go to lower income families. Several analysts have found that some key government transfers actually go mostly to middle and high income families and thus contribute to greater inequality. We argue in this paper that the impact of these programs on inequality should be evaluated considering the benefits received net of the taxes paid by households to finance the programs, since higher income households receive higher benefits but they also pay higher taxes. We illustrate this approach by estimating the impact of three government programs on inequality in Uruguay and show that the conclusions are different depending on whether we use gross or net benefits in the estimation.

On the Political Economy of Pro-Market Reform in Latin America

Most Latin American countries have undertaken sweeping market-oriented reforms over the last two decades. This chapter provides an overview of the reform process in eight Latin American countries, based on country studies undertaken within the Understanding Reform Project supported by the Global Development Network.1 This project had several ambitious questions about the ability to undertake reform, the capacity to implement reform successfully, and the ability of the reforms to deliver the expected outcomes in different countries. We found it quite difficult to provide clear-cut comparative answers to these questions from the information provided in the country studies. This was probably the case because the object of analysis is itself quite complex, because the (quite rich) country studies had somewhat different emphases, and because it is inherently difficult to answer any question with eight data points, even if those data points were clearly measured. Nonetheless, it is an interesting exercise to take a look at these countries together, as there are several common factors to most Latin American reform experiences, as well as some interesting differences among the cases

Can Latin America Protect the Elderly with Non-Contributory Programmes? The Case of Uruguay

Coverage of contributory pension programmes has been quite disappointing in Latin America in the aftermath of the reforms. The question thus arises as to whether non-contributory programmes could fill the gap. Uruguay is atypical in this region in that the proportion of the elderly receiving contributory pensions is high, and the incidence of poverty among the aged population is lower than among any other age group. But several observers fear that this situation could deteriorate in the future, because the conditions for accessing the pensions have been significantly tightened in the past decade. This article assesses several options for reforming the existing non-contributory pension programme, and estimates their fiscal cost.

Efectos Distributivos de la Reforma de la Seguridad Social: el Caso Uruguayo

We present in this paper an estimation of the distributive effects of the reform of the Uruguayan pensions system initiated in 1995. The estimation is based on simulations done with an overlapping generations model adapted and calibrated to the Uruguayan reality. We compute the expected changes in the generational accounts of several groups of workers, considering different generations, gender and income level. The simulations are done in a general equilibrium framework, and hence we can simultaneous and consistently assess the micro and macro impact of the reform.

Government Discretionary Transfers and Overinsurance

Excess distortions in government transfer policies might result from the government lack of ability to commit not to help unlucky agents. Incentive considerations that are crucial in standard insurance in the presence of moral hazard play, no role in this case. A benevolent government that sets transfers after agents have chosen their effort faces a pure risk-sharing problem and provides full insurance, inducing too little effort. The lack of commitment ability might also cause indeterminacy: the economy might end in any of several equilibria, without the government being able to push it to a particular one.

Social Security and Retirement in Uruguay

Abstract We estimate a structural life-cycle model for retirement behaviour using work history records of the main Uruguayan pension programme. The estimated coefficient of relative risk aversion is around 1.5 and the estimated discount rate is about 1.8 per cent per annum. The marginal disutility of work increases with age and is larger for women than men, and for private than public employees. Simulations show a very low impact of the 1995 pension reform on retirement ages. Many individuals in this population respond little to economic incentives and some individuals would advance rather than postpone retirement after the reform.