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Social security schemes and labor supply in the formal and informal sectors

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  • Rodrigo Ceni

    () (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)

Abstract

This paper analyzes how changes in the social security scheme affect the participation path of workers between the formal and the informal sectors. The choice between the formal and informal sectors is completely voluntary. In this framework, individuals, depending on the retirement program and their endowment of human capital, construct their decision paths in the labor market. I use Argentinean panel data from the period 1995-2011 to estimate a structural model, and this is used to evaluate changes in the workers' behavior when the pension scheme changes. Among the main results, if the parameters are fixed as in the PAYG, there is a slight reduction in the years of the formality and the percentage of workers who achieve a full pension. Moreover, the increase of the requirement to achieve a full pension to 35 years in the formality, increases the percentage of workers in formality over 45 and the number of the years working formally but it decreases the achievement of a pension at all educational levels. The decrease of that requirement has an effect on the reduction of the years in formality even for those who are not affected directly, the high part of the distribution of the high educated. Finally, if the minimum age to achieve a pension is now 67 instead of 65, there is an important increment in the formality and the full pension achievement especially for the low educated workers.

Suggested Citation

  • Rodrigo Ceni, 2014. "Social security schemes and labor supply in the formal and informal sectors," Documentos de Trabajo (working papers) 14-12, Instituto de Economía - IECON.
  • Handle: RePEc:ulr:wpaper:dt-12-14
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    References listed on IDEAS

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    More about this item

    Keywords

    informality; discrete choice; pension schemes; Argentina;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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