Universal Old - Age Benefits in a Multi - Pillar System : Evaluating Incentive Effects in Chile

The purpose of this project is to simulate and measure the potential labor incentive effects of proposed reforms to the Chilean privatized social security system. The potential policy changes would create universal social security coverage by providing non-contributory pensions to the poor who are currently uncovered by any formal retirement or disability insurance. The simulations consider the system of pension support that currently exists for individuals under a given income level, to determine whether or not they respond to the negative incentives to contribute to social security and participate in the formal labor market; they also test the effect on non-contributory pension support on informal saving. Analysis is conducted using household survey data from Chile over the last six years, and a differences-in-differences approach to the discontinuous budget constraint that is created by the policy. The methodology also utilizes data on individuals’ knowledge of pension support programs and attitudes towards social security. Measuring this response aids in considering the potential effects of expanding the non-contributory pension support, as well as the impact of social security policy on the size of the Chilean informal labor market.