Inequality in pension contribution gaps1

We examine how gaps in contributions to social insurance vary across the earnings distribution. These gaps have multiple short-term effects on workers in addition to reducing contributory pensions. Using a 14-year panel from Chile, we find that earners in the two lowest wage deciles experience substantially higher gaps, a result that persists after controlling for extensive covariates, individual fixed effects and applying instrumental variables. The remaining incidence of the wage decile on earner gaps is a collective attribute of each wage decile that may help guide policy. We also analyze total gaps—which include periods of inactivity—using a 35-year administrative panel. Total gap frequency declines from 91–90% in the lowest decile to 26% in the highest, a larger inequality than in other estimates. We further measure the dispersion of cumulative total gaps over a 20-year horizon, starting from different initial earnings deciles. Finally, we review reasons for weak political incentives to reduce earner gaps through closing statutory exemptions and increasing enforcement budgets.