Social Security Rules and Labor Force Participation of Older Workers: Evidence from Chile

57 Pages Posted: 24 Sep 2009  

Alejandra Cox Edwards

California State University, Long Beach - Department of Economics

Estelle James

Consultant

Date Written: April 1, 2009

Abstract

Recent research has argued that incentives stemming from social security systems influence the worker’s decision to retire. The experience of Chile, which radically changed its system in 1981, offers an opportunity to test this hypothesis. The new system tightened access to early pensions, replaced an actuarially unfair defined benefit plan with an actuarially fair defined contribution plan, exempted pensioners from the pension payroll tax and allowed widows to keep their own pension in addition to their survivor’s benefit. Although the old system is being phased out, since 1981 the two systems have co-existed. Using probit analysis of the behavior of a retrospective sample of new and old system affiliates, we estimate the impact of the new social security rules on the probability of dropping out of the labor force, for older workers. We find large effects. Age of pensioning has been postponed. Labor force participation is much higher among affiliates of the new system compared with the old, especially for pensioners and women. This is not simply due to selection: Aggregate participation rates have increased as the new system’s share of total affiliates has risen.

Suggested Citation

Edwards, Alejandra Cox and James, Estelle, Social Security Rules and Labor Force Participation of Older Workers: Evidence from Chile (April 1, 2009). Michigan Retirement Research Center Research Paper No. 2009-202. Available at SSRN: https://ssrn.com/abstract=1478043 or http://dx.doi.org/10.2139/ssrn.1478043

Alejandra Cox Edwards (Contact Author)

California State University, Long Beach - Department of Economics ( email )

1250 Bellflower Blvd
Long Beach, CA 90840-4607
United States
562-985-5969 (Phone)
562-985-5804 (Fax)

Estelle James

Consultant ( email )

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