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Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil

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  • Robalino, David A.
  • Zylberstajn, Eduardo
  • Zylberstajn, Helio
  • Afonso, Luis Eduardo

Abstract

This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal versus informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social insurance system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social insurance / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel, benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian social insurance system today might generate unnecessary distortions (lower savings rates and less formal employment) that increase the costs of the system and can induce regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.

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Bibliographic Info

Paper provided by The World Bank in its series Social Protection Discussion Papers with number 52448.

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Date of creation: 01 Dec 2009
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Handle: RePEc:wbk:hdnspu:52448

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Keywords: Pensions&Retirement Systems; Emerging Markets; Labor Policies; Labor Markets; Debt Markets;

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References

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  1. Samwick, Andrew A., 1998. "New evidence on pensions, social security, and the timing of retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 70(2), pages 207-236, November.
  2. Patricia M. Anderson & Alan L. Gustman & Thomas L. Steinmeier, 1997. "Trends in Male Labor Force Participation And Retirement: Some Evidence On The Role Of Pensions And Social Security In The 1970's And 1980's," NBER Working Papers 6208, National Bureau of Economic Research, Inc.
  3. Whitehouse, Edward, 2007. "Pensions panorama: retirement-income systems in 53 countries," MPRA Paper 14797, University Library of Munich, Germany.
  4. Gruber, Jonathan & Wise, David, 1998. "Social Security and Retirement: An International Comparison," American Economic Review, American Economic Association, American Economic Association, vol. 88(2), pages 158-63, May.
  5. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series, The World Bank 2965, The World Bank.
  6. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, Elsevier, vol. 86(1), pages 129-146, April.
  7. Robin L. Lumsdaine & David A. Wise, 1994. "Aging and Labor Force Participation: A Review of Trends and Explanations," NBER Chapters, National Bureau of Economic Research, Inc, in: Aging in the United States and Japan: Economic Trends, pages 7-42 National Bureau of Economic Research, Inc.
  8. Bosch, Mariano & Maloney, William F., 2010. "Comparative analysis of labor market dynamics using Markov processes: An application to informality," Labour Economics, Elsevier, Elsevier, vol. 17(4), pages 621-631, August.
  9. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C153-C170, March.
  10. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 412-38, April.
  11. David Card & Phillip B. Levine, 1998. "Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program," NBER Working Papers 6714, National Bureau of Economic Research, Inc.
  12. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 757-82, July.
  13. Anderson, Patricia M & Meyer, Bruce D, 1993. "Unemployment Insurance in the United States: Layoff Incentives and Cross Subsidies," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(1), pages S70-95, January.
  14. Bodor, Andras & Robalino, David & Rutkowski, Michal, 2008. "How Mandatory Pensions Affect Labor Supply Decisions and Human Capital Accumulation? Options to Bridge the Gap between Economic Theory and Policy Analysis," MPRA Paper 12046, University Library of Munich, Germany.
  15. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc.
  16. Robert Holzmann & David A. Robalino & Noriyuki Takayama, 2009. "Closing the Coverage Gap : The Role of Social Pensions and Other Retirement Income Transfers," World Bank Publications, The World Bank, number 2651, August.
  17. Takayama, Noriyuki, 1990. "How Much Do Public Pensions Discourage Personal Saving and Induce Early Retirement in Japan ?," Hitotsubashi Journal of Economics, Hitotsubashi University, Hitotsubashi University, vol. 31(2), pages 87-103, December.
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Cited by:
  1. Almeida, Rita & Arbelaez, Juliana & Honorati, Maddalena & Kuddo, Arvo & Lohmann, Tanja & Ovadiya, Mirey & Pop, Lucian & Puerta, Maria Laura Sanchez & Weber, Michael, 2012. "Improving access to jobs and earnings opportunities : the role of activation and graduation policies in developing countries," Social Protection Discussion Papers, The World Bank 67610, The World Bank.
  2. Giles, John T. & Wang, Dewen & Cai, Wei, 2011. "The Labor Supply and Retirement Behavior of China's Older Workers and Elderly in Comparative Perspective," IZA Discussion Papers 6088, Institute for the Study of Labor (IZA).
  3. Holzmann, Robert, 2010. "Bringing Financial Literacy and Education to Low and Middle Income Countries: The Need to Review, Adjust, and Extend Current Wisdom," IZA Discussion Papers 5114, Institute for the Study of Labor (IZA).
  4. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers, The World Bank 52919, The World Bank.
  5. Lord, Janet & Posarac, Aleksandra & Nicoli, Marco & Peffley, Karen & Mcclain-Nhlapo, Charlotte & Keogh, Mary, 2010. "Disability and international cooperation and development : a review of policies and practices," Social Protection Discussion Papers, The World Bank 56092, The World Bank.
  6. Robalino, David A. & Zylberstajn, Eduardo & Robalino, Juan David, 2011. "Incentive Effects of Risk Pooling, Redistributive and Savings Arrangements in Unemployment Benefit Systems: Evidence from a Job-Search Model for Brazil," IZA Discussion Papers 5476, Institute for the Study of Labor (IZA).
  7. World Bank, 2012. "Republic of Lebanon--Good Jobs Needed : The Role of Macro, Investment, Education, Labor and Social Protection Policies," World Bank Other Operational Studies 13217, The World Bank.
  8. Ra, Young-Sun & Shim, Kyung Woo, 2009. "The Korean case study : past experience and new trends in training policies," Social Protection Discussion Papers, The World Bank 53696, The World Bank.
  9. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers, The World Bank 52445, The World Bank.

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