Pension design with a large informal labor market: Evidence from Chile
This paper investigates empirically the fiscal and welfare trade-offs involved in designing a pension system when workers can avoid participation by working informally. A dynamic behavioral model captures a household's labor supply, formal/informal sector choice and saving decisions under the rules of Chile's canonical privatized pension system. The parameters governing household preferences and earnings opportunities in the formal and the informal sector are jointly estimated using a longitudinal survey linked with administrative data from the pension system's regulatory agency. The parameter estimates imply that formal jobs rationing is limited and that mandatory pension contributions play an sizeable role in encouraging informality. Our policy experiments show that Chile could achieve a reduction of 23% of minimum pension costs, while guarantying the same level of income in retirement, by increasing the rate at which the benefits taper off.
|Date of creation:||01 Mar 2014|
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- Christopher Taber & Rune Vejlin, 2012.
"Estimation of a Roy/Search/Compensating Differential Model of the Labor Market,"
2012 Meeting Papers
566, Society for Economic Dynamics.
- Christopher Taber & Rune Vejlin, 2016. "Estimation of a Roy/Search/Compensating Differential Model of the Labor Market," NBER Working Papers 22439, National Bureau of Economic Research, Inc.
- van der Klaauw, Wilbert & Wolpin, Kenneth I., 2008. "Social security and the retirement and savings behavior of low-income households," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 21-42, July.
- Wilbert van der Klaauw & Kenneth I. Wolpin, 2005. "Social Security and the Retirement and Savings Behavior of Low Income Households," PIER Working Paper Archive 05-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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