Implicit Redistribution within Argentina's Social Security System after the 2008 reform: a micro-simulation exercise

Transcription

1 Implc Redstrbuton whn Argentna's Socal Secury System after the 2008 reform: a mcro-smulaton exercse Pedro E. Moncarz 1 Instuto de Economía y Fnanzas Facultad de Cencas Económcas Unversdad Naconal de Córdoba August 29, 2012 [WORK IN PROGRESS] We assess redstrbuton n the Argentnean penson and unemployment nsurance programs on a lfetme bass. Usng household surveys, we smulate lfetme declared labor ncome and flows of contrbutons and benefs, and compute the expected present values of ncome and net flows. On the one hand, we fnd that the PAYG-DB system n Argentna appears to be regressve, specally n the case of women workng n the prvate sector. On the other hand, under the ndvdual account opton avalable untl the reform of 2008, Socal Secury s regressve for prvate workers but not for those n the publc sector. If ncome from nformal jobs are also accounted for, the system becomes slghtly progressve. A weak enforcement of the law contrbutes to make the system less regressve or even progressve. Fnally, assumng the removal of the nformal labor market, the system becomes almost neutral, whether consderng the PAYG opton or of ndvdual accounts, even showng a small level of progressvy. Keywords: socal secury, redstrbuton, mcro-smulatons, Argentna. JEL: H50, H55 1 I partcularly thank to Alvaro Forteza by hs nsghtful comments, to María Laura García for provdng nvaluable nformaton, and to the partcpants at the 32nd IARIW General Conference (Boston, 2012), the 16th Annual LACEA Meetng (Santago de Chle, 2011) and workshops at the Departamento de Economía (Unversdad de la Repúblca, 2011) and Instuto de Economía y Fnanzas (Unversdad Naconal de Córdoba, 2010). As usual I'm solely responsble for all remanng errors. Pedro E. Moncarz: Facultad de Cencas Económcas, Unversdad Naconal de Córdoba. Av. Valparaíso s/n. Cudad Unversara. Córdoba Argentna. E-mal: [email protected].

2 1. Introducton Ths document assesses the mplc redstrbuton of the Argentnean penson and unemployment nsurance programs on a lfetme bass. Usng household surveys we smulate lfetme declared labor ncome and flows of contrbutons and benefs, and compute the expected present values of ncome and net flows. Standard dstrbuton ndexes are used to assess the dstrbuton and redstrbuton mplc n these systems. We compare the current PAYG-DB system wh the mandatory ndvdual DC system that was n force, and coexsted wh the PAYG-DB opton, untl the reform of November The man fndng s that the current PAYG-DB system n Argentna appears to be regressve, specally n the case of women workng n the prvate sector. On the other hand, under an ndvdual account system, socal secury s regressve for prvate workers but not for those n the publc sector. If ncome from nformal jobs are also accounted for, the system becomes slghtly progressve. A smlar result emerges under a weak enforcement of the system rules. The paper s organzed as follows. Secton 2 presents the conceptual framework. A bref descrpton of the old age penson and unemployment nsurance programs s presented n secton 3. Secton 4 descrbes the data, whle secton 5 presents the methodology. The man results are dscussed n secton 6, whle secton 7 summarze the man fndngs. 2. Conceptual Framework 2 Socal Secury (SS) programs are usually desgned to redstrbute ncome from the better to the worst off. Most benef formulas nclude explc redstrbutve ngredents, lke mnmum pensons and supplements to small pensons. Even ndvdual accounts DC programs, whch are based on the prncple of actuaral neutraly, tend to ncorporate non-actuaral redstrbutve components n the real world. 2 Ths secton summarzes the proposal of Research Program developed wh the support of the World Bank project Assessng Implc Redstrbuton whn Socal Insurance Systems, whch ncluded fve case studes: Argentna and Mexco (Moncarz, 2011), Brazl (Zylberstajn, 2011), Chle (Fajnzylber, 2011) and Uruguay (Forteza and Musso, 2012). 2

3 But SS programs also redstrbute ncome through less explc mechansms. Frst, hgh mortaly rates may reduce the returns low ncome workers get for ther contrbutons n penson programs when unfed mortaly tables are used (Garrett 1995; Duggan et al. 1995; Beach and Davs 1998). Second, government transfers that contrbute to fnance SS n many countres favor the populaton that s covered by the programs, whch n developng countres tends to be the better off (Rofman et al. 2008). Thrd, low denses of contrbuton may leave many workers nelgble for benefs. Low ncome workers have been shown to have partcularly low denses of contrbuton (Forteza et al. 2009; Bersten et al. 2006). In the present case I focus on ths last channel,.e. the redstrbuton stemmng from the fact that low ncome workers tend to have systematcally shorter contrbuton hstores. It should be clear that the mpact of dfferent mortaly rates and dfferent coverage on mplc redstrbuton s not assessed. Mcro-smulatons of lfetme ncome and SS contrbutons and benefs are used to assess SS redstrbuton. The focus s on ntra-generatonal redstrbuton: one cohort, current penson rules. The ndvdual s consdered as the un of analyss, but should be notced that redstrbuton n the SS system may look very dfferent at the famly level. Gustman and Stenmeer (2001) show that, when analyzed at the ndvdual level, the U.S. socal secury looks very redstrbutve, favorng low ncome workers, but looks much less so at the famly level (see also Lambert 1993, p 14). Ideally, the assessment of the redstrbutve mpact of socal secury programs should be based on the comparson of ncome dstrbuton wh and whout socal secury. Ths s not the same as comparng pre- and post-socal secury ncome (.e. ncome mnus contrbutons plus benefs), because socal secury s lkely to nduce changes n work hours, savngs, wages and nterest rates. One possble drawback of these models s the assumpton of full ratonaly, somethng that has been subject to much controversy, especally regardng long run decsons lke those nvolved n socal secury. After all, the most appealed ratonale for penson programs s ndvduals myopa (Damond, 2005, chap. 4). In turn, much of fscal ncdence analyss s done on the non-behavoral type of assumpton. It s usually 3

4 performed under the assumpton that pre-tax ncome s not affected by the tax system. The approach here proposed s closer to the lerature poneered by Gruber and Wse (1999, 2004), who desgned and computed a seres of ndcators of SS ncentves to retre assumng no explc behavoral responses. The optmzaton models have the obvous advantage of ncorporatng behavoral responses, so not only the drect effects of polces are consdered, but also the ndrect effects that go through behavoral changes. However, n order to keep thngs manageable, these theoretcally ambous models necessarly make hghly stylzed assumptons regardng not only ndvdual preferences and constrants, but also socal secury programs. Gven the goals of the proposed research, ths s a serous drawback. Nonbehavoral mcro-smulatons are based on exogenously gven work hstores and geared to provdng nsghts on the socal secury transfers that emerge from those hstores. Thanks to ther relatve smplcy, non behavoral models allow for a much more detaled specfcaton of the polcy rules and work hstores than ntertemporal optmzaton models. An addonal advantage of mcro-smulatons s that the effects are straghtforward, so no black-box ssues arse. At the very least, can be expected to capture the frst-order mpact effects of socal secury on ncome dstrbuton. The mcro-smulaton modelng can thus be seen as a frst step n a more ambous research program that ncorporates behavoral responses n a more advanced phase. 3. The Argentnean penson and unemployment programs Wh small varatons, Damond (2006), Valdés Preto (2006), Lndbeck and Persson (2003) and Lndbeck (2006) classfy socal secury systems accordng to three dmensons: the degree of fundng, the dstrbuton of rsks, and the degree of actuaral farness. PAYG programs are totally unfunded and so they le at one extreme of the degree of fundng dmenson. In these programs, benefs are entrely fnanced by the current flow of contrbutons and there are no funds to back penson rghts. At the other extreme le programs n whch accrued penson rghts are fully backed by prevous contrbutons. Indvdual savngs accounts are the most common form of fully funded 4

5 penson schemes. In ths case, penson rghts are lnked to accumulated fnancal assets n the ndvdual account. In the second dmenson, penson programs are usually classfed as DB or DC. In a DC program, contrbutons are fxed and benefs are resdually determned, adjusted to ensure fnancal sustanably. In a DB program, benefs are fxed or more commonly the relaton between earnngs and penson s settled n a formula and contrbutons are adjusted endogenously. The thrd dmenson refers to the lnk between ndvdual contrbutons and benefs. The program s actuarally far f the expected sum of dscounted benefs and contrbutons are equal. It s sad to be nonactuaral f there s no lnk between contrbutons and benefs. Most PAYG penson programs are DB and nonactuaral, and ndvdual savngs accounts are n prncple fully funded, DC and actuarally far. But other combnatons are also possble. Non-fnancal-defnedcontrbutons penson programs also known as notonal accounts are totally unfunded (.e. PAYG), and yet they are DC and also exhb hgh degrees of actuaral farness. Many DB programs have reserves that back penson rghts, partcularly so when programs are relatvely young. PAYG-DB programs usually have some n-bult redstrbutve components, lke mnmum and maxmum pensons, so they are often consdered to be better equpped n prncple to perform redstrbuton than more actuaral DC programs (Palmer, 2006). Pure ndvdual savngs accounts are actuarally far and hence, by constructon, do not perform redstrbuton. In ths lght, f penson programs are expected to allevate poverty and reduce nequaly n all age (Barr, 2001), PAYG-DB programs have an advantage over ndvdual savngs accounts. However, n the real world s not always clear whether PAYG-DB programs are effectve n allevatng poverty or reducng ncome nequaly n old-age. Also many savng accounts programs are complemented wh redstrbutve nonactuaral components, lke mnmum penson guarantees and matchng contrbutons. Therefore, whether a program contrbutes to reducng nequaly s an emprcal ssue. 5

6 In the US there has been an actve debate over how progressve socal secury s n practce. Gustman and Stenmeer (2001) on redstrbuton at the ndvdual vs. famly level. Garrett (1995), Duggan et al. (1995), Beach and Davs (1998) on mortaly rates. In developng countres, at least two addonal factors may contrbute to reduce the ably of socal secury to amelorate poverty and reduce ncome nequaly n old age. Frst, socal secury coverage s mostly lmed to the better off (Rofman et al. 2008). Also governments often subsdze socal secury and, gven that coverage s very low among low ncome ndvduals, these subsdes may be regressve. Second, low ncome ndvduals tend to have short work hstores (Forteza et al. 2009), whch n most DB programs mply reduced or even no penson benefs at all (Forteza and Ourens, 2012). In Argentna, from the 1940s socal secury was based on a prncple of soldary, snce current contrbutons were used to pad current benefs. In 1994, there was ntroduced an mportant and structural change that meant the coexstence of two systems, a PAYG-DB system as the one was already n place, and a Indvdual Account system where future benefs to each ndvdual would be pad wh the funds accumulated along her/hs workng lfe. However even under the ndvdual account system there was some redstrbutve components through the payment by the government of a flat benefs, as well as the exstence of a mnmum penson. In both cases there were matchng contrbutons by the employers, but whch have no nfluence on the part of the benef that s functon of the labor earnngs. In the late 2008, at the peak of the global fnancal crss, and under the excuse that the balances n the ndvdual accounts were losng much of s value, the ndvdual account system was abolshed. In Argentna there coexst several retrement systems. On the one hand there s the natonal system whch covers prvate sector workers as well as publc employees n the Federal and some Provncal Governments. At the sub-natonal level, several provnces have ther own systems whch cover provncal and muncpal publc employees, more or less half of these systems were merged wh the natonal system durng the second half of the 1990s. Fnally, professonal councls that regulate professonal actves, such as engneers, lawyers, etc. have ther own systems that are organzed at a provncal level. Even 6

7 more, both at the natonal and sub-natonal levels there s a wde number of specfc regmes coverng specfc actves, for nstance the judcary, unversy researchers, etc. However, the analyss here wll concentrate only on the general regme at the natonal level, whch s the one wh the most coverage. 3 More specfcally, the current system s regulated by the Law The condons salared workers must meet n order to be entled to a retrement benef are the followng: 4 30 years of contrbutons 65 years for men and 60 for women. Women, f they choose to, can contnue workng untl reachng 65 years. People that do not comply wh the mnmum length of contrbuton can compensate each year of mssng contrbutons wh two addonal years counted after reachng the mnmum retrement age. People who do not meet the prevous condons can access an old-retrement penson f: They are 70 years old. Have a mnmum of 10 years of contrbutons. Have 5 years of contrbutons n the 8-year perod prevous to retrement. The Health and Socal Secury System s founded by contrbutons made by workers and employers. Workers contrbute an 11% of the gross salary, whle employers contrbute a 16%. In June 2011 the maxmum gross salary to calculate both contrbutons was A$ (US$ ), whle the mnmum wage was $A (US$ ). Workers also contrbute a 6% for health nsurance, and 1% n case they choose to afflate to a trade unon. Employers contrbute a 8% for health nsurance. 5 3 Ths regme represents, approxmately, between 75% and 80% of all benefcares, ncludng survvor benefs. 4 We exclude from the analyss people workng under any other regme than salared workers, such as self-employed. 5 Employees' contrbutons to health nsurance s 3% for ther own coverage and another 3% to fnance health nsurance for those already retred. Employers' contrbutons are dvded, but n ths case 6% s for the employee health nsurance, whle the remanng 2% s for those already retred. 7

8 Wh respect to the benefs, the monthly payment s dvded nto two parts: A flat benef known as Unversal Basc Penson (PBU). In June 2011 the PBU was A$ (US$ ). If the person retred under the old-age penson scheme the PBU s 70% of the full amount. A compensatory payment (PC) that s equal to 1.5% for each year of contrbuton, or fracton above sx months (wh a maxmum of 35 years) of the average real gross salary 6 (ncludng the worker contrbutons to the Socal Secury System but excludng the employer contrbutons) over the last 10 years prevous retrement. In order to calculate the average gross salary, perods n whch the person was not workng are excluded. In despe of the legal norm makes reference to the 10 years prevous retrement, s customary to consder the last 120 posve remuneratons prevous retrement. In June 2011, the maxmum amount a person was entled to receve under the PC was A$ (US$ ). In June 2011, the System guaranted a mnmum penson of A$ (US$ ). Between October 1993 and November 2008 there coexsted two systems. The PAYG-DB system summarzed above and a system based on a mandatory ndvdual account. 7 Leavng asde the transon perod, any person choosng the ndvdual account system would had access to the followng benefs: The PBU condonal on havng fulflled the condons of age and years of contrbutons stated above for the PAYG-DB system. To buy an annuy or to arrange for a scheduled retrement subject to havng the mnmum requred age: 60 year for women and 65 for men. The mnmum guaranteed penson was appled to anyone who was elgble to access the PBU 8. 6 The Socal Secury Secretary of the Labor Mnstry s n charge of establshng the mechansm to calculate the average salary. In our case we use real wages deflated by the manufacturng wage ndex wh base second quarter of The ndvdual account system was suppressed on December 9,

9 Under the prvate retrement opton, only the worker contrbutons, 11% of the gross salary, was drected to fnance s ndvdual account. Employers contrbutons were used to fnance the payment of the PBU and the mnmum guaranteed penson. Even when people contrbutng to the ndvdual account system had two optons when retrng: ) to buy an annuy or ) to keep the balance of ther account and to arrange for a programmed whdrawal, we assume that all ndvduals choose the frst opton. The expected (corrected by survval rates) cumulated fund that each ndvdual has at the moment of retrement s calculated as follows: 1 K c s 1 r ara 1 a a sra a0 raa where: a stands for age when contrbutng; ra for the retrement age; c for the amount of contrbuton; r for the real rate of return (we use 3% rate 9 ); and s for the survval rate. In ths formula we are assumng that a person starts to receve hs/her annuy at the age of retrement. The annuy a person s able to buy s calculated as follows: p K A ; A ara sa s 1 r max age ara ra ara where max age s the potental maxmum age. Snce we are workng wh real values, there s no need to assume an ndexaton rule for p a. Fnally, wh regards to the unemployment nsurance, ths s que lmed and only covers prvate-sector workers, beng funded wh a 1.5% of the wage bll pad by the employer, employees make no 8 Before the reform of 2008, there exsted an ndex known as the Módulo Prevsonal (MOPRE). The mnmum guaranteed penson as well as the flat benef pad by the publc sector, known as the PBU after the 2008 reform, were both expressed as a proporton of the MOPRE. 9 The 3% rate s appled on gross workers contrbutons. 9

10 contrbuton. Unemployed workers are entled to a monthly payment that s equal to a half of the maxmum wage earned n the sx-month perod prevous to become unemployed, wh a maxmum of $A 400 (US$ 96.85) and a mnmum of A$ 250 (US$ 60.53). The unemployment benef s pad for up to twelve months dependng on the length of contrbutons before unemployment (there s a mnmum of 6 months contrbutons durng the prevous 3 years before unemployment), for the frst four months the benef s a 100%, between months 5 and 8 s an 85%, and from months 9 to 12 s a 75%. The frst benef s pad after 60 days of becomng unemployed. 4. Data The data source s the Encuesta Permanente de Hogares (EPH) for the perod 1995 to The EPH s a household survey carred out twce a year, usually n the months of Aprl/May and October. Each household, and all s ndvduals, s surveyed four consecutve tmes after whch they are dropped from the survey. The sample we work wh ncludes only ndvduals that have been observed the four tmes and that at least n one occason have declared themselves as employed or unemployed. The varable that dentfes the contrbutng status to the socal secury s avalable only for salared employees. Thus, the sample wll not nclude people that have declared a dfferent employment status than salared employees, when employed or n ther prevous job when unemployed, n any of the four opportunes they were surveyed. Because of the potental dfferences n the system coverage for the dfferent types of workers, the publc and prvate sectors wll be consdered separately, as well as men and women. Because of the mpossbly to model the transons between the prvate and publc sectors, we consder only ndvduals that when employed have not changed sectors, and aged between 18 and 69 years old the four tmes they were 10 From the second half of 2003 the EPH was subject to an mportant methodologcal change that mpedes us to extend the perod of analyss, also because of the tmng households are survey under the new EPH ths s less suable for the purposes of the present study. 10

11 surveyed. In Tables 1 to 4 we present some descrptve statstcs. The man pcture s the hgh ncdence of the not-contrbutng/workng status, especally n the prvate sector, mostly for women. 5. Methodology 5.1. Estmaton of contrbuton status As s clear from the sample descrpton, there s an mportant percentage of cases n whch the ndvdual s workng but does not contrbutes. Ths behavor s more evdent for those workng n the prvate sector, specally for women. Because of ths characterstc that emerges from our sample, and under the assumpton that those ndvduals that contrbute are not a random draw of the workng populaton, we use the Heckman Selecton Model n order to control for the bas that would emerge f the contrbuton status were estmated whout controllng for the probably that an ndvdual could have a job but does not contrbute to socal secury. In partcular, we estmate the followng model: L L L L x ' (1.a) C C C C y ' (1.b) where: L : dummy varable equal to 1 f ndvdual s workng and zero otherwse; C : dummy varable equal to 1 f, condonal on workng (L =1), ndvdual contrbutes and zero otherwse; x : set of varables that explan the probably of ndvdual workng; y : set of varables that explan the probably of ndvdual contrbutng; t: stands for a semester. 11

12 L C Under the assumptons of the Heckman Selecton Model, and are correlated wh each other, such that the estmaton of equaton (1.b) whout takng consderaton of (1.a) would render a based estmaton of vector C. As just sad, equatons (1.a) and (1.b) are estmated usng the Heckman selecton estmator, so the ndvdual effects L and C are recovered as follows: L ˆ T t 1 ' ˆ L L x T C ˆ T t1 ' ˆ C C y IMR T where IMR are the nverse Mlls Rato whch are defned as the normal pdf and cdf respectvely. IMR ' ˆL x ' ˆL x, where and stand for In sample smulatons The probably of ndvdual, wh ndvdual effect ˆC and condonal on beng workng, contrbutng n tme t s calculated as follows: C ˆ C C P y ' ˆ IMR ˆ Then, condonal on L 1, the contrbuton status for ndvdual n tme t s defned as: C C C 1 f P draw ; and 0 otherwse. 12

13 where C draw s a realzaton from a unform (0,1) dstrbuton for each perod t; workng status (equal to 1 f workng and to 0 f not workng). 11 L s the smulated Out of sample smulatons: Snce n ths case the ndvdual effects L and C are not drectly observed, they are generated as follows: L ˆ L z L C ˆ C z C where ˆ L and ˆ C and are the standard devatons of the ndvdual effects ˆL C z are both pseudo-random draws from a Standard Normal dstrbuton. and ˆC respectvely, and L z Then, the probably of contrbutng s calculated as: C ' ˆ C C P y ˆ IMR where t now stands for a month. Then, condonal on L 1, the contrbuton status for ndvdual n month t s defned as: 11 L The probably of ndvdual workng at moment t s calculated as ' ˆ L L P ˆ x. Then, the smulated L L workng status s defned as L f P L 1 draw and 0 otherwse, where draw s a realzaton from a unform (0,1) dstrbuton for each perod t. 13

14 C C C 1 f P draw ; and 0 otherwse where C draw s a realzaton from a unform (0,1) dstrbuton for each perod t; workng status (equal to 1 f workng and to 0 f not workng). 12 L s the smulated 5.2. Projecton of labor ncome We estmate two statc random effect models, one for when ndvdual s workng and contrbutng, and a second one for when ndvdual s workng but does not contrbute. In the frst case we refer as to formal labor, whle n the second case as to nformal labor. Gven that our man goal s to project ncome, we are partcularly nterested n explorng the mpact on wages of tme nvarant and determnstc covarates, lke age and educaton. More specfcally, wages are assumed to be governed by the followng stochastc processes: ' ln w x v e f L = 1 and C = 1 (2.a) ' ln w x v e f L = 1 and C = 0 (2.b) where w s the real wage 13 receved by person n tme t (semester); x s a set of regressors of personal 0 1 characterstcs, age and educaton; and the unemployment rate; and are tme nvarant unobservable 0 1 characterstcs of ndvdual, and e and e are both error terms. As long as we expect w to be statonary we do not ntroduce any determnstc tme trend n the equaton The out of sample workng status are calculated as n prevous footnote, but usng nstead of ˆ L. 13 Wages are deflated usng the Wage Index of Manufactures. 14 In prevous drafts we estmated equaton (2) by OLS ncludng an autoregressve component for the second and followng perods of a workng spell and an statc equaton for the frst perod. However, snce our panel has a small T, the results would suffer from a serous bas because of the ncluson of the lagged dependent varable on the RHS of the equaton. L 14

15 Predctons accordng to equaton (2) can only be computed for the ndvduals n the sample,.e. ndvduals for whch we can compute the ndvdual effects. But the model s used to predct the labor ncome flow of newborn ndvduals. In ths case, we smulate the ndvdual effects: 15 ˆ 0 z 0 0 ˆ 1 z 1 1 where ˆ 0 and ˆ 1 are the standard devatons of the ndvdual effects vˆ 0 and vˆ 1, respectvely, n equaton (2). z 0 and z 1 are pseudo-random draws from a Standard Normal dstrbuton. Thus, the labor ncome stream of the newborn ndvduals s computed as follows: ' 0 0 ln w x v ˆ f L 1 and C 1 ' 1 1 ln w x v ˆ f L 1 and C Computaton of SS contrbutons and benefs Based on the smulated work and ncome hstores, we compute socal contrbutons and benefs accordng to the exstng laws as descrbed n Secton 3. We nclude the unemployment nsurance program together wh the retrement program. Workng ths way we are mplcly assumng that ndvduals leave no survvors and suffer no sckness or dsably. We assume that all ndvduals clam ther retrement benefs as soon as they are elgble to do so. 15 The mplc assumpton here s that the dstrbuton of the ndvdual effects does not vary wh age or cohort. 15

16 5.4. Computaton of pre- and post-socal-secury lfetme ncome, and dstrbuton ndexes The expected pre-ss lfetme labor ncome s the present value of the expected smulated labor ncome: ar 1 a0 1 W r p a W a where: r s age at retrement; a p a s the probably of worker s survval at age a ; W a s total labor cost (ncludng employee and employer contrbutons) at age a ; s the dscount rate (we use a 3% rate). We compute the lfetme Socal Secury Wealth (SSW) as an ndcator of SS transfers. SSW s the present value of expected net transfers to SS. It can be obtaned as the sum of the dscounted expected flows of old-age pensons PB and unemployment benefs (UB) net of contrbutons SSC. SSW PB UB SSC amax age ar aba, r1 a PB p ar 1 UB p a0 ar 1 SSC p a0 aub a1 a ac a 1 a where: max age s maxmum potental age; B a, r s the amount of retrement benefs at age a condonal on retrement at age r; 16

17 UB a s the unemployment benef collected at age a; C a s the amount of contrbuton to SS at age a. Here we exclude contrbutons to health nsurance. Fnally, the expected post-ss lfetme labor ncome s defned as W r SSW. Two alternatves of pre- and post-ss lfe tme labor ncomes are calculated. Frstly only consderng labor ncome subject to contrbutons ( L 1 and C 1 ), and secondly ncludng also labor ncome from whch the person does not contrbute ( L 1 and C 0 ). 6. Results As ponted out n Secton 3, even when s possble a pror to dstngush between the dstrbutonal effects of dfferent SS arrangements, becomes mostly an emprcal matter. In our case, to assess the redstrbutve mpact of socal secury we use some descrptve statstcs of pre-ss lfetme ncome, SSW, and SSW to pre-ss ncome rato. We also calculate two progressveness measures, the Lorenz curve of pre-ss lfetme ncome and s assocated concentraton curve for the post-ss lfetme ncome (ranked by the pre-ss lfetme ncome). Fnally two addonal ndexes are calculated, the Gn Coeffcent (for preand post-ss lfetme ncome) and the Reynolds-Smolensky-type ndex of net redstrbutve effect (Lambert, 1993, p 256). Ths ndex assesses the redstrbutve mpact of a program computng the area between the Lorenz pre-program ncome and the concentraton post-program ncome. A posve (negatve) value ndcates that the program reduces (ncreases) nequaly. 16 For each populaton group we work wh a smulated populaton of ndvduals, startng at an age of 18 years old. Each ndvdual potentally work untl she/he s 69 years old (nclusve) f she/he does not retre earler. The maxmum age an ndvdual lves s 100 years old. In equatons (1) and (2) two dummes are ncluded to control for the level of educaton (see Tables 5 and 7 for a defnon of these varables). 16 The Gn coeffcents and the Reynolds-Somelnsky ndex were estmated usng DASP (Araar and Duclos, 2009). 17

18 These dummes are assgned followng the proporton n the samples used for the estmaton of equaton (1). Even when some educaton levels are completed at an age older than 18, we assume that the proporton of populaton wh such level of educaton has from the begnnng of the smulated perod. In the case of the selecton equaton we also nclude a dummy varable equal to one f the ndvdual s male/female and 65/60 years old or more. Table 5 reports the results for the workng and contrbuton status equatons. In results do not reported here we obtaned that for women n the prvate sector the IMR was not statstcally sgnfcant, also the selecton model generates too low smulated contrbuton denses when comparng wh observed ones. Thus, for women n the prvate sector we estmate equatons (1.a) and (1.b) whout assumng the two error terms are correlated between them. For the most of the varables we obtan the expected sgns. In the case of the age effect, the nterpretaton s more dffcult snce ths varable enter the regresson through a cubc polynomal, a better pcture s gven by Fgure 1 that shows the observed and out-of-sample smulated denses. The goodness of f s que hgh when measured by the proporton of correct predctons for the n-sample smulatons (see Table 6). Wh regards to the ncome equaton, the results are reported n Table 7. As expected the educaton dummes are posve and ncreasng n the level of educaton, they are always statstcally sgnfcant. However s not clear f they have a hgher margnal effect when the ndvdual s workng and contrbutng, ths appears to be the case for men n the prvate sector, but surprsngly not for the other three groups, specally for the hghest level of educaton (complete tertary-unversy). For the age coeffcents these are mostly also sgnfcant. Usng Schaffer and Stllman (2010) test of overdentfyng restrctons we have that n all cases but women n the publc sector when not contrbutng, we do not reject the hypothess that there s no systematc dfference between the fxed and random estmates. 18

19 Table 8 to 10 show some statstcs about the smulated populatons n relaton to the hstory of contrbuton and access to a retrement benef. For the smulatons under the current PAYG system we assume that each ndvdual retres as soon as she/he meets the requred condons, whle for the case of the ndvdual account system we work under the assumpton that each ndvdual works untl she/he s entled to the benefs n charge of the publc sector (the PBU and the guaranteed mnmum penson). Workng ths way means that changng the system we work wh has no behavoral effect on when people decded to retre. Because of our workng assumptons, comes as no surprse that the average age of retrement s almost equal to the mnmum requred age, 60 for women and 65 for men (see Table 8). Table 9 shows that the proporton of the smulated populatons, excludng those that never contrbuted, that access to a retrement benef under the PAYG system and to the PBU under the ndvdual account system, are hgher for publc workers. Also, a hgher proporton of men access to a benef than women, ndependently of the sector they work n, but ths dfference s very much mportant n the case of the prvate sector, whch does not come as a surprse snce for women n the prvate sector our sample shows only a 27.7% of cases wh a declared contrbuton status (ths percentage goes up to 47.3% when the reference group are those that declare a workng status), whle for men the percentage s 58.9% (71.7%). Fnally, n Table 10 we report the average years of contrbutons of the smulated populatons. The average length of contrbutons s longer n the publc than n the prvate sector (consderng all ndvduals, regardless of whether they access to a retrement benef). Ths outcome s surely a reflecton of the hgher labor stably enjoyed by publc workers relatve to prvate ones. Because of men need to contrbute, at least, untl they are 65 years old whle for women the mnmum age s 60 years, men contrbute more than women. When we restrct the analyss only to ndvduals that access to a penson benef under the PAYG system and to the PBU under the ndvdual account system, the years of contrbutons are n all cases above the mnmum requrement. Movng our attenton to the redstrbutve effects of the socal secury system, n Table 11 we present some descrptve statstcs for the smulated populatons for the pre-ss lfetme ncome, SSW, and SSW to pre-ss lfetme ncome rato. 19

20 When only consderng formal labor ncome, for whch people contrbute to socal secury, average expected pre-ss lfetme ncome goes between 88.8 thousand for women n the prvate sector to thousand for men n the publc sector. In the case of men the dfference between publc and prvate sector s que less mportant than for the case of women, 24.5% n the case of mean aganst a 102% for women. Men, on average, have a hgher pre-ss lfetme ncome than women, specally n the prvate sector wh an average value 129% hgher than for women, whle n the publc sector the dfference s 40%. Ths mportant dfference aganst women n the prvate sector s a reflecton of ther much lower probably of contrbuton. If we now nclude ncome form jobs for whch there was no contrbuton, nformal ncome, the pattern between publc and prvate sectors, and women and men s more or less much the same, wh a slght mprovement n the relatve poson of people workng n the prvate sector relatve to those n the publc sector, and for women relatve to men. These changes are explaned because s n the prvate sector, specally for women, where the s a hgher percentage of people that have a job but do not contrbute. The smulated populatons show a large degree of ncome dsperson gven by the rato between the average ncome of the 99 and 1 percentle. These dfferences are much mportant n the prvate sector, and for women than for men. As expected, the dstrbutons are skewed to the rght, wh the medan pre-ss lfetme ncome consstently lower than the mean values. It comes as no surprse that the average SSW s never posve whatever the system we are consderng. On the one hand, under the PAYG system, the part of the retrement benef constuted by the PC s calculated based on the average gross wage that ncludes the contrbutons from the employee (11% of gross wages), but not the contrbutons from the employer (16% over the gross wages), whch are used for payment of the PBU, whch for most cases s a mnor part of the total retrement benef (PBU + PC). Smlarly, under the system of ndvdual accounts, only the employee contrbutons are used to fnance hs/her personal account, whch then determnes the amount of the annuy, whle employer contrbutons are to fnance the payment of the PBU. As n the PAYG system, the PBU s for most cases the smallest 20

21 part of the total retrement benef (PBU + annuy). In addon, the low coverage of unemployment benefs also contrbutes negatvely to the SSW. In the case of the PAYG system, SSW ranges from thousand (men n the publc sector) to thousand (women n the prvate sector) 17. SSW s consderably more negatve for men than for women, wh a 2 to 1 relaton n the publc sector and 2.5 to 1 n the prvate sector. The dfferences between publc and prvate sectors are less mportant for men than for women. Measured by the dfference between percentles 1 and 99, whn each category, SSW shows the hghest dsperson among men n the prvate sector and the lowest among women n the prvate sector. When comparng the two systems, SSW mproves under the ndvdual account system for three out of the four groups, the excepton beng women n the publc sector where there s small deteroraton. Ths mprovement s much more mportant, n monetary terms, for those wh the lowest SSW, men eher n the prvate or publc sector; n proportonal terms the dfferences across groups are of a lesser magnude. When the comparson s made among the four groups whn the ndvdual account system the patterns are more or less smlar to the ones descrbed for the PAYG system. On average, the SSW to pre-ss lfetme ncome rato ranges from -19.9% among women n the prvate sector to -12.2% among women n the publc sector under the PAYG system. Ranked by ths rato, there s an mportant dsperson, as for percentle 1 the rato s about -22%, whle for percentle 99 s range s between -15.2% and -7.1%. The descrbed pattern s not much affected f we consder also the ncome from not contrbutng jobs, however women n the prvate sector show an mprovement relatve to men, and prvate workers relatve to publc ones. The reason for ths s the hgher probably of the former havng an nformal job. As was the case wh the SSW, the average SSW to pre-ss lfetme ncome mproves under the ndvdual account system, but wh the exceptons of women for the 99 percentle n both sectors and for the 50 percentle n the publc sector. 17 When ncludng ncome from nformal jobs, SSW s equal to zero for everyone that never hold a formal job. 21

22 The results just summarzed show that socal secury redstrbutes wealth n the case of Argentna. We now move to look n what drecton ths redstrbuton goes. Fgures 2.A show the relatonshp between pre-ss lfetme ncome and SSW when only contrbutng jobs are ncluded. Under both regmes, the negatve slope would suggest that the redstrbuton s progressve. However, s possble to observe that the negatve relatonshp s clearer for the ndvdual account system, whch also show hgher (less negatve) levels of SSW. Also, n the case of the PAYG system there appears to be dfferent sub-groups whn each of the four populaton groups. When ncludng ncome from jobs that do not contrbute (see Fgures 2.B) we have that those who derved some of ther ncome from nformal jobs ncrease ther pre-ss lfetme ncome whle SSW does not change, and also we are ncludng ndvduals that never contrbuted so ther SSW s zero, whle they have a posve pre-ss lfetme ncome. As we can apprecate from Fgures 2.A and 2.B, these ndvduals are low earners havng, n average, a low pre-ss lfetme ncome. In Fgures 3.A and 3.B we plot the Lorenz curves for pre-ss lfetme ncome and ther correspondng concentraton curves for post-ss lfetme ncome. Wh the excepton of women n the prvate sector under the PAYG system, the two curves are very close to each other. The dfferences are even less mportant when ncludng ncome from nformal labor. These patterns are reflected n the Gn coeffcents for the pre-ss and post- lfetme ncomes (see Table 12). When only ncome form contrbutng jobs are consdered, the PAYG system s regressve for men n the prvate sector and women n the publc sector (n both cases the Gn ncreases a 1.5%, approxmately 0.6 ppt.), whle not surprsngly there s a consderable regressveness for women n the prvate sector (the Gn ncreases a 3.5%, 1.9 ppt.). For men n the publc sector the system s slghtly progressve (the Gn falls 0.4%, 0.1 ppt.). On the other hand, under the ndvdual account system, SS s regressve only for prvate sector workers, however the effects are much less mportant than under the PAYG system. For publc workers, SS nduces a more progressve dstrbuton of ncome under the ndvdual account 22

23 system, n the case of men the smulated effect s the same as wh the PAYG system, whle for women SS reduces the Gn coeffcent by 0.2 ppt. (-0.6%) under the ndvdual account system, whle under the PAYG opton there s an ncrease of 0.6 ppt. (1.5%). The same pattern emerges when lookng at the Reynolds-Smolensky-type ndex (see Table 13). Under the PAYG opton the ndex s negatve for the frst three groups, specally for women n the prvate sector, whle s posve for men n the publc sector. For the ndvdual account system the ndex s negatve only for prvate sector workers and posve for those who were employed n the publc sector. The results change que mportantly when we also nclude ncome from nformal employment, over whch there s no contrbuton. Ths s especally true under the PAYG opton. Now SS s slghtly progressve for men, eher n the prvate or publc sectors under any of the two systems. For women the same s true wh the excepton of the PAYG system both n the publc and prvate sectors, but for ths last case now the Gn ncreases just 0.08 ppt., only a 4% of the prevous 1.9 ppt. ncrease. When usng the Reynolds-Smolensky-type ndex, SS s always progressve but for women n the publc sector under the PAYG opton. The falure of the current Argentnean PAYG socal secury program to reduce nequaly represents a puzzle. The vestng perod condon mght help explan. A possble explanaton for our results s that as Forteza et al. (2009) show, large segments of the populaton have a low probably of havng contrbuted thrty or more years when they reach retrement ages, and ths probably s partcularly low among low ncome ndvduals (see Fgure 4 and 5). Forteza and Ourens (2012) show that the mplc rate of return on contrbutons pad to these programs s very low when ndvduals have short contrbuton hstores. Hence, low ncome ndvduals mght be gettng a bad deal from socal secury because they have short hstores of contrbuton. Fgure 4 shows the kernel denses for the average labor cost per year of contrbuton dstngushng between people that contrbuted to the system and do not get a retrement benef and those who do. Fgure 5 shows the average labor cost per year of employment for each of the two groups when ncludng ncome from nformal jobs. It s very clear from the smulated data that low 23

24 wage earners have a much lower chance of fulfllng wh the condons the system requres to obtan a penson at the age of retrement. 18 However, under the ndvdual account system the fact that low earners show shorter contrbuton hstores plays a less negatve role because now all ndvduals who do not fulfll the condons to be entled to the PBU and the mnmum guaranteed penson, only lose the contrbutons made by ther employers (16% of the gross salary), whle ther own contrbutons (11% of the gross salary) allows them to buy an annuy when retrng. A de facto progressve component, maybe the most mportant, s the weak enforcement of the law, n partcular wh regards to f a person fulflls the mnmum requrements to access a retrement benef. To account for the de facto applcaton of the law we run an alternatve scenaro under a weak enforcement of the condons to access to a benef. We assume that everyone that havng worked are 70 years old and do not access to a retrement benef s granted the PBU. As reported n Table 14, not surprsngly, an scenaro wh a weak enforcement of the law reduces mportantly the regressveness of the system. Ths mprovement s more mportant for the prvate than for the publc sector, and for women than for men. These results are manly drven by the lower probably that people n the prvate sector, and partcularly women, have of fulfllng the condons for a retrement benef. It emerges clearly, and once agan whout beng a surprse, the case of women n the prvate sector, whch as shown before have a much lower probably of obtanng a retrement benef f the law s strctly enforced. The same patterns emerge when we nclude nformal labor ncome. Fnally, we run another alternatve scenaro under the assumpton that there s no nformal jobs, so every tme an ndvdual s workng we assume she or he contrbutes to SS. In ths case, we use the results of equaton (1.a) to calculate the workng hstores, and estmate a new sngle equaton to generate the 18 C A very parsmonous lnear probably model such as ln R 1 2 w u, where R 1 f the person C get a retrement benef, and zero otherwse, s the smulated ndvdual fxed effect obtaned from equaton (1), and w s the average wage (ncludng employer and employee contrbutons) per year of contrbuton, explans a large proporton of the probably of gettng a penson, wh a 1% ncrease n the average wage ncreasng the probably of gettng a penson between % dependng on the type of worker and the sector, f we exclude women n the prvate sector the effect ranges between %. 24

25 ncome hstores 19. As Table 15.A shows, there s an mportant ncrease n the share of populaton that would access to a retrement benef. Wh regards to the dstrbutve mpacts of SS, both the PAYG and ndvdual accounts systems are almost neutral, showng a slght progressveness (see Table 15.B). Ths last result makes very clear the mportance of reducng the sze of the nformal labor market. 7. Concludng remarks Argentna Socal Secury System, based on a PAYG-DB scheme, appears to be regressve, specally for women workng n the prvate sector. Ths result constutes, a pror, a puzzle, that mght fnd explanaton n the lower probably that low-ncome earners have of accessng to a retrement benef as reported n Forteza et al. (2009). Ths effect s much more mportant n the case of the prvate sector, specally for women. Under a program of ndvdual accounts, the system s almost neutral from a dstrbutonal pont of vew, the man reason s that even though some people would not be entled to the PBU and the guaranteed mnmum penson, they would stll receve somethng back from ther own contrbutons (11% of gross wages), whle they "lose" the contrbutons made by employers (16% of gross wages). The system becomes slghtly progressve when ncludng nto the nequaly measures the ncome derved from jobs people do not make contrbutons. Ths result s explaned by the fact that accordng to our smulatons are low earners ndvduals, who show lower probables of beng entled for a retrement benef, the ones that derve most of ther labor ncome from jobs for whch they do not make contrbutons. Ths last result means that low earner workers have low ncentves to look for jobs n the formal sector, wh the negatve externales that ths knd of behavor brngs durng the workng lfe, such as lack of health servce coverage. 19 The results for these estmates are avalable upon request. 25

26 Under a scenaro assumng a weak enforcement of the socal secury law, the PAYG system becomes less regressve when not consderng ncome from nformal jobs whle s progressve for the four groups when nformal jobs are taken nto account. These changes are more lkely for women than for men, and n the prvate than n the publc sector. Both cases could be explaned because of the lower probably women and those workng n the prvate sector have of fulfllng the condons to have access to a retrement benef. On ths last pont, assumng the removal of the nformal labor market, the system becomes almost neutral, whether consderng the PAYG opton or of ndvdual accounts, even showng a small level of progressvy. References Araar, A. and J.-Y. Duclos DASP: Dstrbutve Analyss Stata Package, Unversy of Labat, PEP, World Bank, UNDP. Barr, N The Welfare State As Pggy Bank: Informaton, Rsk, Uncertanty, and the Role of the State. Oxford Unversy Press: New York. Beach, W. and G. Davs Socal Secury's Rate of Return. CDA Herage Foundaton. Damond, P Taxaton, Incomplete Markets, and Socal Secury. The MIT Press: Massachusetts. Damond, P Conceptualzaton of Non-Fnancal Defned Contrbuton Systems. In: R. Holzmann and E. Palmer, Penson Reform. Issues and Prospects for Non-Fnancal Defned Contrbuton (NDC) Schemes. The World Bank: Washngton. Duggan, J., R. Gllngham and J. Greenlees Progressve Returns to Socal Secury? An Answer from Socal Secury Records. Research Paper U.S. Department of the Treasury. Fajnzylber, E Implc Redstrbuton n the Chlean Socal Insurance System. Workng Paper. Unversdad Alberto Ibáñez. Chle. Forteza, A. and G. Ourens Redstrbuton, Insurance and Incentves to Work n Latn-Amercan Penson Programs. Journal of Penson Economcs and Fnance, 11, Forteza, A. and I. Musso Assessng Redstrbuton n the Uruguayan Socal Secury System. Workng Paper. Forthcomng Journal of Income Dstrbuton. Forteza, A., I. Apella, E. Fajnzylber, C. Grushka, I. Ross and G. Sanroman Work Hstores and Penson Entlements n Argentna, Chle and Uruguay. Socal Protecton Dscusson Papers The World Bank. Garrett, D The Effects of Dfferental Mortaly Rates on the Progressvy of Socal Secury. Economc Inqury, 33, Gruber, J. and D. Wse (eds.) Socal Secury and Retrement Around the World. The Unversy of Chcago Press: Chcago and London. Gruber, J. and D. Wse (eds.) Socal Secury Programs and Retrement around the World: Mcro- Estmaton. The Unversy of Chcago Press: Chcago and London. Gustman, A. and T. Stenmeer How Effectve Is Redstrbuton under the Socal Secury Benef Formula? Journal of Publc Economcs, 82, Lambert, P The Dstrbuton and Redstrbuton of Income. A Mathematcal Analyss. Manchester Unversy Press: Manchester and New York. Lebman, J Redstrbuton n the Current US Socal Secury System. NBER WP Natonal Bureau of Economc Research. 26

27 Lndbeck, A. and M. Persson The Gans from Penson Reform. Journal of Economc Lerature, 41, Lndbeck, A Conceptualzaton of Non-Fnancal Defned Contrbuton Systems. In: Robert Holzmann and Edward Palmer (eds.), Penson Reform. Issues and Prospects for Non-Fnancal Defned Contrbuton (NDC) Schemes. The World Bank: Washngton DC. Moncarz, P Assessng Implc Redstrbuton whn Socal Secury Systems n Argentna and Mexco. Workng Paper. Facultad de Cencas Económcas. Unversdad Naconal de Córdoba. Argentna. Palmer, E What s NDC? In: Robert Holzmann and Edward Palmer (eds), Penson Reform. Issues and Prospects for Non-Fnancal Defned Contrbuton (NDC) Schemes. The World Bank: Washngton DC. Rofman, R., L. Lucchett and G. Ourens Penson Systems n Latn Amerca: Concepts and Measurements of Coverage. Socal Protecton Dscusson Papers 0616, The World Bank. Schaffer, M., and S. Stllman xtoverd: Stata module to calculate tests of overdentfyng restrctons after xtreg, xtvreg, xtvreg2 and xthtaylor. Sutherland, H Euromod: An Integrated European Benef-Tax Model. EUROMOD Workng Paper No. EM9/01. Unversy of Essex. Uned Kngdom. Zylberstajn, E Assessng Implc Redstrbuton n the Brazlan Socal Secury System. Workng Paper. Unversy of Sao Paulo. Brazl. Valdés-Preto, S Conceptualzaton of Non-Fnancal Defned Contrbuton Systems. In: R. Holzmann and E. Palmer (eds.), Penson Reform. Issues and Prospects for Non-Fnancal Defned Contrbuton (NDC) Schemes. The World Bank: Washngton DC. 27

28 Table 1 Sample szes Publc Sector Prvate Female 5,784 11,069 Gender Male 5,417 12,445 Source: own based on EPH. Table 2 Dstrbuton of samples dependng on havng contrbuted at least n one out of the four possble occasons Publc Prvate Contrbuted at least one tme Female Male Female Male No Yes Source: own based on EPH. Table 3 Sample workng status (%) Publc Prvate Female Male Female Male Not Workng Workng Source: own based on EPH. Table 4 Sample contrbutng status (%) a) All sample Publc Prvate Female Male Female Male Not contrbute Contrbute b) Condonal on workng Publc Female Male Female Male Not contrbute Contrbute Source: own based on EPH. Prvate 28

29 Table 5 Results Equaton (1) Contrbuton Workng Contrbuton Workng Contrbuton Workng Contrbuton Workng Age *** *** *** *** *** (0.020) (0.017) (0.007) (0.007) (0.018) (0.041) (0.041) (0.037) Age2 () *** *** *** *** *** (0.403) (0.466) (0.183) (0.179) (0.381) (1.043) (0.864) (0.969) Age3 () *** *** *** *** *** (0.257) (0.391) (0.150) (0.155) (0.263) (0.836) (0.598) (0.817) Educaton 2 () *** *** *** *** *** *** *** (0.008) (0.015) (0.006) (0.005) (0.008) (0.035) (0.034) (0.027) Educaton 3 (v) *** *** *** *** *** *** (0.015) (0.032) (0.008) (0.007) (0.009) (0.045) (0.055) (0.028) Unemployment *** *** *** *** ** ** ** (0.002) (0.003) (0.001) (0.001) (0.001) (0.006) (0.004) (0.006) Elderly (v) ** ** ** (0.072) (0.024) (0.115) (0.102) IMR *** *** *** (0.111) (0.083) (0.216) Constant *** *** *** *** *** ** *** (0.301) (0.204) (0.089) (0.079) (0.262) (0.510) (0.689) (0.460) Observatons 49,780 25,980 44,276 21,668 23,136 Censored Prvate Sector Male Female (a) Male Publc Sector Uncensored (a) Workng and Contrbuton equatons were estmated ndependently of each other. () (Age^2)/1000; () (Age^3)/100000; () Complete hgh school/ncomplete tertaryunversy; (v) Complete tertary-unversy; (v) Dummy equal to one f the ndvdual s 65 years old or more for men, and 60 or more for women. Robust standard errors n brackets. * sgnfcant at 10%; ** sgnfcant at 5%; *** sgnfcant at 1%. Female

30 Table 6 In sample smulatons: Rght predctons (*) a) Workng Status Prvate Sector Publc Sector Male Female Male Fem ale Not workng Workng Total b) Contrbuton Status Prvate Sector Publc Sector Male Female Male Fem ale Not contrbutes Contrbutes Total c) Contrbuton Status (condonal on workng) Prvate Sector Publc Sector Male Female Male Fem ale Not contrbutes Contrbutes Total (*) The smulated status matches the observed status. 30

31 Table 7 Results Equaton (2) Prvate Sector Publc Sector Male Female Male Female Contrbutes Not Contrbutes Contrbutes Not Contrbutes Contrbutes Not Contrbutes Contrbutes Not Contrbutes Age *** *** *** ** *** *** (0.012) (0.018) (0.018) (0.020) (0.019) (0.057) (0.025) (0.051) Age2 () *** *** *** *** *** (0.312) (0.480) (0.471) (0.514) (0.469) (1.463) (0.602) (1.360) Age3 () *** *** *** ** (0.258) (0.397) (0.391) (0.418) (0.366) (1.177) (0.471) (1.155) Educaton 2 () *** *** *** *** *** *** *** *** (0.011) (0.018) (0.016) (0.021) (0.015) (0.055) (0.020) (0.044) Educaton 3 (v) *** *** *** *** *** *** *** *** (0.024) (0.052) (0.021) (0.037) (0.019) (0.088) (0.019) (0.053) Constant *** *** *** *** *** *** *** *** (0.144) (0.213) (0.217) (0.240) (0.251) (0.693) (0.332) (0.598) Observatons 27,757 10,471 11,379 12,835 18,365 1,064 17,514 1,670 Indvduals 8,864 5,033 4,046 6,101 5, , Sargan-Hansen Test of Overrdng restrctons (P. value) (v) () (Age^2)/1000; () (Age^3)/100000; () Complete hgh school/ncomplete tertary-unversy; (v) Complete tertary-unversy; (v) Fxed vs. Random effects. Robust standard errors n brackets. * sgnfcant at 10%; ** sgnfcant at 5%; *** sgnfcant at 1%. 31

32 Table 8 Average retrement age of smulated populatons Group Years Prvate-Female 63.2 Prvate-Male 65.3 Publc-Female 61.8 Publc-Male 65.2 Notes: () Unemployment rate used n smulatons: 8%; () people retre as soon as they meet the requred condons. Table 9 Proporton of smulated populatons that access to a retrement benef Group (*) (**) Prvate-Female Prvate-Male Publc-Female Publc-Male (*) Includes people that dd not contrbuted whle workng. (**) Excludes people that dd not contrbuted whle workng. Note: () Unemployment rate used n smulatons: 8%. Table 10 Average number of years of contrbuton of smulated populatons Group (*) (**) (***) Prvate-Female Prvate-Male Publc-Female Publc-Male (*) Includes people that do not access to a retrement benef, ndependently of the contrbuton status whle workng. (**) Includes people that do not access to a retrement benef, only wh a contrbutng status whle workng. (***) Includes only people who access to a retrement benef. Note: () Unemployment rate used n smulatons: 8%; () people retre as soon as they meet the requred condons. 32

33 Table 11 Pre-socal secury lfetme labor ncome and Socal Secury Wealth (n thousands of June 2011 US dollars) A) Excludng ncome from nformal jobs PAYG system Indvdual account system Pre-SS Income SSW / Pre-SS SSW / Pre-SS SSW SSW Income Income Mean P Prvate-Male Medan P Sk ewness Mean P Prvate-Female Medan P Sk ewness Mean P Publc-Male Medan P Sk ewness Mean P Publc-Female Medan P Sk ewness

34 Table 11 (contnued) B) Includng ncome from nformal jobs (*) PAYG system Indvdual account system Pre-SS Income SSW / Pre-SS SSW / Pre-SS SSW SSW Income Income Mean P Prvate-Male Medan P Sk ewness Mean P Prvate-Female Medan P Sk ewness Mean P Publc-Male Medan P Sk ewness Mean P Publc-Female Medan P Sk ewness (*) SSW s equal to zero for all ndvduals that never hold a formal job. 34

35 Prvate Female Prvate Male Publc Female Publc Male Table 12 Gn coeffcents of lfe tme labor ncome before and after socal secury Excludng nformal job ncome Includng nformal job ncome Estmate LB (95%) UB (95%) Estmate LB (95%) UB (95%) pre-ss post-ss (PAYG) post-ss (IA) pre-ss post-ss (PAYG) post-ss (IA) pre-ss post-ss (PAYG) post-ss (IA) pre-ss post-ss (PAYG) post-ss (IA) Table 13 Reynolds-Smolensky ndex of effectve progresson Excludng nformal job ncome Includng nformal job ncome PAYG IA PAYG IA Prvate Female Prvate Male Publc Female Publc Male Table 14 Redstrbutve effects under a week law enforcement scenaro A. Gn coeffcents Excludng nformal job ncome Includng nformal job ncome pre-ss post-ss (PAYG) pre-ss post-ss (PAYG) Prvate-Female Prvate-Male Publc-Female Publc-Male B. Reynolds-Smolensky ndex of effectve progresson Excludng nformal job ncome Includng nformal job ncome Prvate-Female Prvate-Male Publc-Female Publc-Male

36 Table 15 Scenaro wh no nformal jobs A) Proporton of smulated populatons that access to a retrement benef Group % Prvate-Female Prvate-Male Publc-Female Publc-Male Note: () Unemployment rate used n smulatons: 8%. B) Gn Coeffcents pre-ss post-ss PAYG Ind. Account Prvate-Female Prvate-Male Publc-Female Publc-Male

37 Fgure 1 Observed and out-of-sample smulated contrbuton denses by age a) Share of overall sample Prvate-Female Prvate-Male Publc-Female Publc-Male age Observed Smulated Graphs by populaton_group b) Share of sample wh a workng status Prvate-Female Prvate-Male Publc-Female Publc-Male age Observed Smulated Graphs by populaton_group Note: The unemployment rates used for the smulated denses are 15.3 for men and 17.4 for women. These fgures are the average rates for the perod covered by the country sample used n equaton (1). 37

38 Fgure 2 Socal Secury Wealth and lfe tme ncome A) Excludng nformal jobs A.1) PAYG system A.2) Indvdual Account system 38

39 Fgure 2 (contnued) B) Includng nformal jobs (*) B.1) PAYG system B.1) Indvdual Account system (*) SSW s equal to zero for all ndvduals that never hold a formal job. 39

40 Fgure 3 Pre Socal Secury lfe tme labor ncome Lorenz curve and Post Socal Secury lfe tme ncome concentraton curve A) Excludng nformal jobs A.1) PAYG system A.2) Indvdual Account system 40

41 Fgure 3 (contnued) B) Includng nformal jobs B.1) PAYG system B.2) Indvdual Account system 41

42 Fgure 4 Argentna: average labor cost per year of contrbuton (*) Densy Prvate-Male Gross annual wage per year of contrbuton (thousand June 2011 USD) Densy Prvate-Female Gross annual wage per year of contrbuton (thousand June 2011 USD) kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef Densy Publc-Male Gross annual wage per year of contrbuton (thousand June 2011 USD) Densy Publc-Female Gross annual wage per year of contrbuton (thousand June 2011 USD) kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef (*) Includes employee and employer contrbutons. Note: excludng nformal jobs. 42

43 Fgure 5 Argentna: average labor cost per year of employment (*) Densy Prvate-Male Gross annual average wage (thousand June 2011 USD) Densy Prvate-Female Gross annual average wage (thousand June 2011 USD) kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef Densy Publc-Male Gross annual average wage (thousand June 2011 USD) Densy Publc-Female Gross annual average wage (thousand June 2011 USD) kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef kernel = epanechnkov, bandwdth = Wh R. Benef Whout R. Benef (*) Includes employee and employer contrbutons. Note: ncludng nformal jobs. 43