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Social Security Privatization Reform and Labor Markets: The Case of Chile

  • Sebastian Edwards
  • Alejandra Cox Edwards

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 Chile's aggregate of unemployment.

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File URL: http://www.nber.org/papers/w8924.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8924.

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Date of creation: May 2002
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Publication status: published as Edwards, Sebastian and Alejandra Cox Edwards. "Social Security Privatization Reform And Labor Market: The Case Of Chile," Economic Development and Cultural Change, 2002, v50(3,Apr), 465-489.
Handle: RePEc:nbr:nberwo:8924
Note: AG LS PE
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