Notes

  1. See for example Banerjee and Duflo (2008).
  2. Among these reformers (and note that Brazil and Venezuela did not join the trend), three models emerged: substitutive, parallel and mixed (Mesa-Lago, 2004). In substitutive systems (adopted in Chile, Bolivia, Mexico, El Salvador and Dominican Republic), the previous defined-benefit pay-as-you-go system is closed and replaced by individual capital accounts. Parallel systems (adopted in Peru and Colombia) are characterised by a deep reform of the public scheme, which then competes with new private ones. In the mixed systems (Argentina until the 2008 reform, Costa Rica, and Uruguay) provision is an aggregate of public (generally minimum) and private benefits.
  3. See Lindbeck and Persson (2003), or Barr and Diamond (2006) for a more sceptical view. The evidence for these benefits has been mixed (Gill et al., 2005). The general consensus is that the long-term fiscal position of reformer economies is significantly more robust. However, reformers face significant up-front fiscal costs, since active pensioners remain subject to the old rules, while some or even all contributors move to the new system. In addition, all the privately managed systems maintain some kind of redistributive pensions, financed out of general revenues. But on a long-term basis, reforms have reduced the financial burden of pensions on the state (at least with respect to future pensioners), and most of the implicit costs have been made explicit, increasing the transparency of the system.
  4. See OECD (2007).
  5. In the case of Chile, there is evidence that social security taxes were already borne by employees, and therefore did not affect labour costs (Gruber, 1997a; Cox-Edwards, 2002). On the other hand, studies covering Mexico and Colombia have found a smaller share being borne by workers, discouraging firms from hiring more workers (for Mexico see Cazorla and Madero, 2007; for Colombia Kugler and Kugler, 2003). Finally, Cruces et al. (2010) find partial shifting to wages, but no labour-market effects in Argentina.
  6. Corbo and Schmidt-Hebbel (2003).
  7. For informal employment see Menezes Filho and Scorzafave (2009), and for formal Côrtes Neri (2010).
  8. See the estimates by Rofman et al. (2008) and the discussion in Gill et al. (2005).
  9. Developed by Santiso (2006).
  10. OECD (2008). See also Jütting and de Laiglesia (2009).
  11. This heterogeneity responds to two dominant schools of thought, reviewed in Perry et al. (2007). On the one hand, the “exit” or voluntary view argues that entrepreneurs and workers opt for informality, based on a cost-benefit analysis. By contrast, the “exclusion” view supports the theory that workers are excluded from formal activities. Jütting and de Laiglesia (2009) argue for a third way, based on the lack of clear boundaries between formality and informality. In this framework, workers are neither 100% formal nor 100% informal; they may pay direct taxes, but not social contributions, for instance.
  12. ECLAC (2008).
  13. See Gasparini and Tornarolli (2007) for an example.
  14. Domestic workers account for a sizeable share of informal employment in Latin America (15% according to ILO, 2009) and such employment explains much of the difference in informality rates between men and women in the region.
  15. Informal employment has often been viewed as a residual sector. In classic development models of surplus labour (such as those of Lewis, 1954; Ranis and Fei, 1961; and Harris and Todaro, 1970) workers move from traditional agriculture to modern manufacturing, but may fail to find a formal job in the urban labour market. In that case, informal work is a form of underemployment that substitutes for outright unemployment.
  16. The evidence is summarised for all emerging countries in Jütting and de Laiglesia, (2009), and for Latin America by Perry et al. (2007).
  17. Fields (1990 and 2005).
  18. Self-employed workers in a professional capacity (craftsmen and members of the liberal professions, among others) can also be thought of as pertaining to the upper tier of informal employment when their activities are undeclared and carried out personally, rather than as part of an incorporated enterprise.
  19. False self-employment is the practice of registering as a self-employed worker with the labour or tax authorities while working in a formal firm in a role whose characteristics would normally be associated with a labour contract. An example would be a “sub-contractor” who is exclusively hired by a single firm while technically remaining self-employed.
  20. See Kanbur (2009).
  21. Following the definition of the 17th International Conference of Labour Statisticians, the self-employed should be classified as formal when their enterprise is formal. Given heterogeneity in the relevant survey questions across countries, a definition based on (homogeneous) questions on employment status has been preferred.
  22. See Da Costa et al. (2010) for the technical details.
  23. See Auerbach et al. (2007).
  24. Workers are considered as affiliates from the point they are registered in the social security administration records. Affiliates are contributors in a particular period if they have paid the required social contributions to the public or private scheme.
  25. Based on Rofman et al. (2008).
  26. The information available is not identical across countries: Chilean data cover 1994 to 2006, with household surveys every two years; the data for Mexico cover 1998 to 2006, with data every two years; for Bolivia data cover the two years 2001 and 2002; and Brazilian data are drawn from annual household surveys from 1996 to 2006 (omitting 1997 and 2000). See Da Costa et al. (2010) for the details and a deeper analysis.
  27. In Chile data cover contributors to both the private pension funds (Administradoras de Fondos de Pensiones, AFP), and to the previous public pay-as-you-go system (Instituto de Normalización Previsional, INP). In Mexico, they refer to enrolment in the private pension system (Sistema de Ahorro para el Retiro, SAR) managed by private pension funds (Administradoras de Fondos para el Retiro, AFORE), to the public institutions (Instituto Mexicano de Seguridad Social, IMSS; Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado, ISSTE), to the state company PEMEX scheme, and to university insurance programmes. In Bolivia, coverage is proxied by enrolment in the private pension system (AFP). In Brazil, data cover contributors to the Instituto de Previdência at all its levels: national (Instituto Nacional Seguro Social, INSS), federal and local.
  28. Table 2.A4 in the statistical annex shows the evolution of coverage for this group from 1994 to 2006. It has increased only for the affluent.
  29. This is stressed in Rofman et al. (2008).
  30. Holzmann and Hinz (2005).
  31. In a similar vein, see BBVA’s study for Chile, Colombia, Mexico and Peru, Escriva et al. (2010), and Ribe et al. (2010) for the region as a whole.
  32. See Holzman et al. (2009), and Hu and Steward (2009).
  33. Levy (2008) and Pages (2010).
  34. ECLAC (2006).
  35. Dethier et al. (2010) tested this for 18 countries in the region. They simulated both universal and means-tested pensions, set at either 50% of the median income or USD 2.50 a day. On the universal basis fiscal costs were in the range 1% to 2% of GDP.
  36. Described more fully in OECD (2009).
  37. This cost estimate is from Arenas et al. (2008) and Melguizo et al. (2009).
  38. See Hu and Steward (2009).
  39. Ribe et al. (2010).
  40. See ECLAC (2006) and Mesa-Lago (2008b).
  41. See Mesa-Lago (2008b).
  42. Studies in the United States have found that average consumption there would be about 20% lower without unemployment insurance (Gruber, 1997b).
  43. Vodopivec et al. (2005).
  44. See the overview by Ferrer and Riddell (2009). Argentina’s system covers only construction workers.
  45. Reyes Posada (2007).
  46. Velásquez Pinto (2003).
  47. Note that accounts correspond to jobs rather than people so that having as many accounts as workers does not automatically indicate full coverage.
  48. Ferrer and Riddell (2009).
  49. See Vodopivec (2009) and Sehnbruch (2006).
  50. See Sehnbruch (2006).
  51. Sehnbruch (2006).
  52. Vodopivec (2009) proposes a system where individuals can receive benefits beyond the balance of their UISA by borrowing against their pension fund.

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