Ex-Ante Methods to Assess the Impact of Social Insurance Policies on Labor Supply with an Application to Brazil

This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal Vs. informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social security system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social security / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian SI system today might generate distortions (lower savings rates and less formal employment) that increase the costs of the system and might generate regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.

Bibliographic Details

Main Authors:	Zylberstajn, Helio, Robalino, David A.
Language:	English
Published:	2009-08-01
Subjects:	ACCESS TO CREDIT, ADDITIONAL SAVINGS, AGE GROUP, ANNUITY, ANNUITY FACTOR, ASSET ACCUMULATIONS, AVERAGE BENEFITS, AVERAGE EARNING, AVERAGE EARNINGS, AVERAGE WAGE, BENEFIT FORMULA, BENEFIT FORMULAS, BENEFIT LEVELS, BENEFITS SCHEMES, CALCULATION, CALCULATIONS, CAPITAL ACCUMULATION, CAPITAL ACCUMULATIONS, CONTRIBUTION PERIOD, CONTRIBUTION RATE, CONTRIBUTION RATES, CONTRIBUTIONS, CREDIT CONSTRAINTS, CURRENT PROGRAMS, DEVELOPMENT ECONOMICS, DISABILITY, DISCOUNT RATE, DISMISSAL, EARLIER RETIREMENT, EARLY RETIREMENT, EARNING, ECONOMIC DECISIONS, ECONOMIC GROWTH, ECONOMIC THEORY, ELDERLY, EMPLOYEE, EMPLOYMENT LEVELS, EMPLOYMENT STATUS, EQUILIBRIUM WAGES, EXOGENOUS SHOCK, EXOGENOUS SHOCKS, FINANCIAL SUSTAINABILITY, FORMAL SECTOR WAGE, FORMAL SECTOR WORKERS, FULL-CAREER WORKERS, FUNDED SCHEME, FUTURE PENSIONS, GENERAL EQUILIBRIUM, GENERAL EQUILIBRIUM MODELS, GROSS REPLACEMENT RATE, GROSS REVENUES, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, HUMAN CAPITAL, INCOME LEVEL, INCOME LEVELS, INCOMES, INDIVIDUAL SAVINGS, INFLATION, INFORMAL SECTOR, INFORMAL SECTOR WORKERS, INFORMAL SECTORS, INNOVATION, INSURANCE POLICIES, INSURANCE REFORMS, INTEREST RATE, INTEREST RATES, INTERGENERATIONAL TRANSFERS, JOBS, LABOR DEMAND, LABOR ECONOMICS, LABOR FORCE, LABOR FORCE PARTICIPATION, LABOR INCOME, LABOR LEGISLATION, LABOR MARKET, LABOR MARKET REGULATIONS, LABOR MARKET TRANSITIONS, LABOR MOBILITY, LABOR SUPPLY, LABOR TURNOVER, LAYOFF, LEVEL OF EDUCATION, LIFE EXPECTANCY, LONG TERM SAVINGS, LOW INCOME, LOW-INCOME, LOW-INCOME GROUPS, LUMP SUM, LUMP SUM PAYMENT, MANDATORY SYSTEM, MARGINAL TAX RATE, MINIMUM CONTRIBUTION, MINIMUM PENSION, MINIMUM PENSIONS, MINIMUM WAGE, MORAL HAZARD, MORTALITY, MORTALITY TABLE, MOTIVATION, OLD-AGE PENSIONS, OUTPUT, PAY-AS-YOU-GO SYSTEM, PAY-AS-YOU-GO SYSTEMS, PENSION, PENSION AT RETIREMENT, PENSION BENEFITS, PENSION COVERAGE, PENSION EARNINGS, PENSION FORMULA, PENSION INCOME, PENSION SYSTEM, PENSION SYSTEMS, PENSION VALUES, PENSION WEALTH, PENSIONS SYSTEM, PENSIONS SYSTEMS, PERIODS OF UNEMPLOYMENT, POLITICAL ECONOMY, PRECAUTIONARY SAVINGS, PRESENT VALUE, PREVIOUS SECTION, PRIVATE SECTOR, PRIVATE SECTOR WORKERS, PROBABILITIES, PROBABILITY, PROGRAM COSTS, PUBLIC ECONOMICS, PUBLIC PENSIONS, RATE OF RETURN, RATES OF RETURN, REAL GROWTH RATE, REPLACEMENT RATE, REPLACEMENT RATES, RETIRED, RETIREMENT, RETIREMENT AGE, RETIREMENT AGES, RETIREMENT BEHAVIOR, RETIREMENT DECISIONS, RETIREMENT INCENTIVES, RETIREMENT INCOME, RETURN ON CONTRIBUTIONS, RISK AVERSION, SALARIES, SALARY, SAVINGS, SAVINGS ACCOUNTS, SAVINGS CAPACITY, SAVINGS RATES, SELF-EMPLOYMENT, SELFEMPLOYMENT, SOCIAL INSURANCE, SOCIAL INSURANCE PROGRAM, SOCIAL INSURANCE PROGRAMS, SOCIAL INSURANCE SYSTEMS, SOCIAL PENSIONS, SOCIAL PROTECTION, SOCIAL SECURITY, SOCIAL SECURITY BENEFITS, SOCIAL SECURITY CONTRIBUTION, SOCIAL SECURITY CONTRIBUTIONS, SOCIAL SECURITY SYSTEM, TAKE-UP RATE, TAKE-UP RATES, TAX, TERM CONTRACTS, UNEMPLOYED, UNEMPLOYMENT, UNEMPLOYMENT BENEFITS, UNEMPLOYMENT DURATION, UNEMPLOYMENT INSURANCE, UNEMPLOYMENT INSURANCE BENEFIT, UNEMPLOYMENT INSURANCE BENEFITS, UNEMPLOYMENT INSURANCE SYSTEM, UNEMPLOYMENT SPELL, UNEMPLOYMENT SPELLS, UNFUNDED LIABILITIES, UNINTENDED CONSEQUENCES, VALUE OF ASSETS, VALUE OF PENSION, WAGES, WORKER, WORKER CONTROLS, WORTH, YEARS OF EARNINGS,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090824114727 https://hdl.handle.net/10986/4219
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