Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis
Mandatory pension systems play a major role in individual savings and labor supply decisions. In particular, it is well known that defined benefit pension schemes, which are not actuarially fair, can create incentives for early retirement and there...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/09/8323915/assessing-distortions-mandatory-pensions-labor-supply-decisions-human-capital-accumulation-bridge-gap-between-economic-theory-policy-analysis http://hdl.handle.net/10986/7348 |
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okr-10986-7348 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
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English |
| topic |
ACCRUAL RATE AGE GROUP AGE GROUPS AVERAGE EARNINGS BENEFIT FORMULA BENEFIT FORMULAS BORROWING CALCULATION CALCULATIONS CAPITAL GROWTH CAPITAL SHARE CAPITAL STOCK COMPENSATION PACKAGE CONTRIBUTION CONTRIBUTION RATE CURRENT PENSION CURRENT PROGRAM CURRICULUM DEFINED BENEFIT DEFINED BENEFIT PENSION DISCOUNT RATE EARLY RETIREMENT ECONOMIC BENEFITS ECONOMIC COST ECONOMIC COSTS ECONOMIC GROWTH ECONOMIC THEORY EDUCATIONAL ATTAINMENT EDUCATIONAL LEVEL EDUCATIONAL LEVELS EMPLOYEE FACTOR MARKETS FEMALE LABOR FEMALE LABOR FORCE FERTILITY FINANCIAL HEALTH FINANCIAL SUSTAINABILITY FORMAL LABOR MARKET FULL EMPLOYMENT FUTURE PENSIONS GOVERNMENT PENSION GOVERNMENT REVENUES HOUSEHOLD SURVEY HUMAN CAPITAL HUMAN DEVELOPMENT IMPLICIT INTEREST INCENTIVE PROBLEMS INCOME INCOME FLOW INCOME FLOWS INCOME GROUP INDIVIDUAL RETIREMENT INDIVIDUAL SAVINGS INFORMAL SECTOR INFORMAL SECTORS INTEREST RATE INTEREST RATES INTERNAL RATE OF RETURN INTERNAL RATES OF RETURN INTERNATIONAL BANK JOBS LABOR ECONOMICS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKETS LABOR MOBILITY LABOR PRODUCTIVITY LABOR SUPPLY LABOUR LABOUR MARKET LACK OF PORTABILITY LEVEL OF DEBT LEVEL OF EDUCATION LEVEL OF RISK MANPOWER MANPOWER PLANNING MARGINAL COSTS MARKET DISTORTIONS MARKET SEGMENTATION MIDDLE EAST MOBILITY OF LABOR MORTALITY NORTH AFRICA OCCUPATION OCCUPATIONAL PENSION OCCUPATIONAL PENSION SCHEMES OCCUPATIONS OLDER WORKERS PENSION PENSION BENEFIT PENSION FUND PENSION FUNDS PENSION PLAN PENSION PLANS PENSION POLICIES PENSION POLICY PENSION REFORM PENSION REFORMS PENSION RIGHTS PENSION SCHEME PENSION SCHEMES PENSION SYSTEM PENSION SYSTEMS PENSION WEALTH PENSIONERS PENSIONS PRESENT VALUE PREVIOUS SECTION PRIMARY EDUCATION PRIMARY SOURCE PRIVATE SECTOR PRIVATE SECTOR JOB PRIVATE SECTOR PUBLIC PRIVATE SECTOR WORKERS PRIVATE SECTORS PROBABILITIES PROBABILITY PRODUCTIVITY PROGRAM COSTS PUBLIC SECTOR JOB PUBLIC SECTOR WORKERS RATE OF RETURN RATES OF RETURN RATES OF RETURNS REAL WAGES RETIRED RETIRED INDIVIDUAL RETIREMENT AGE RETIREMENT AGES RETIREMENT BEHAVIOR RETIREMENT DECISION RETIREMENT DECISIONS RETIREMENT INCENTIVES RETIREMENT INCOME RETURN ON CONTRIBUTIONS RISK AVERSE INDIVIDUALS RISK AVERSION SALARIES SALARY SAVINGS RATE SECONDARY EDUCATION SERVANTS SKILLED LABOR SKILLS DEVELOPMENT SOCIAL COSTS SOCIAL INSURANCE SOCIAL SECURITY SOCIAL SECURITY CONTRIBUTIONS SOCIAL SECURITY SYSTEMS STOCKS SURVIVAL PROBABILITIES TAX TOTAL FACTOR PRODUCTIVITY TOTAL WAGE TRAINING INSTITUTION TYPES OF PENSION UNEMPLOYED UNEMPLOYED INDIVIDUALS VALUE OF CONTRIBUTIONS VALUE OF PENSIONS VOCATIONAL TRAINING WAGE WAGE BILL WAGE DIFFERENTIAL WAGES WITHDRAWAL WORTH YEARS OF SERVICE |
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ACCRUAL RATE AGE GROUP AGE GROUPS AVERAGE EARNINGS BENEFIT FORMULA BENEFIT FORMULAS BORROWING CALCULATION CALCULATIONS CAPITAL GROWTH CAPITAL SHARE CAPITAL STOCK COMPENSATION PACKAGE CONTRIBUTION CONTRIBUTION RATE CURRENT PENSION CURRENT PROGRAM CURRICULUM DEFINED BENEFIT DEFINED BENEFIT PENSION DISCOUNT RATE EARLY RETIREMENT ECONOMIC BENEFITS ECONOMIC COST ECONOMIC COSTS ECONOMIC GROWTH ECONOMIC THEORY EDUCATIONAL ATTAINMENT EDUCATIONAL LEVEL EDUCATIONAL LEVELS EMPLOYEE FACTOR MARKETS FEMALE LABOR FEMALE LABOR FORCE FERTILITY FINANCIAL HEALTH FINANCIAL SUSTAINABILITY FORMAL LABOR MARKET FULL EMPLOYMENT FUTURE PENSIONS GOVERNMENT PENSION GOVERNMENT REVENUES HOUSEHOLD SURVEY HUMAN CAPITAL HUMAN DEVELOPMENT IMPLICIT INTEREST INCENTIVE PROBLEMS INCOME INCOME FLOW INCOME FLOWS INCOME GROUP INDIVIDUAL RETIREMENT INDIVIDUAL SAVINGS INFORMAL SECTOR INFORMAL SECTORS INTEREST RATE INTEREST RATES INTERNAL RATE OF RETURN INTERNAL RATES OF RETURN INTERNATIONAL BANK JOBS LABOR ECONOMICS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKETS LABOR MOBILITY LABOR PRODUCTIVITY LABOR SUPPLY LABOUR LABOUR MARKET LACK OF PORTABILITY LEVEL OF DEBT LEVEL OF EDUCATION LEVEL OF RISK MANPOWER MANPOWER PLANNING MARGINAL COSTS MARKET DISTORTIONS MARKET SEGMENTATION MIDDLE EAST MOBILITY OF LABOR MORTALITY NORTH AFRICA OCCUPATION OCCUPATIONAL PENSION OCCUPATIONAL PENSION SCHEMES OCCUPATIONS OLDER WORKERS PENSION PENSION BENEFIT PENSION FUND PENSION FUNDS PENSION PLAN PENSION PLANS PENSION POLICIES PENSION POLICY PENSION REFORM PENSION REFORMS PENSION RIGHTS PENSION SCHEME PENSION SCHEMES PENSION SYSTEM PENSION SYSTEMS PENSION WEALTH PENSIONERS PENSIONS PRESENT VALUE PREVIOUS SECTION PRIMARY EDUCATION PRIMARY SOURCE PRIVATE SECTOR PRIVATE SECTOR JOB PRIVATE SECTOR PUBLIC PRIVATE SECTOR WORKERS PRIVATE SECTORS PROBABILITIES PROBABILITY PRODUCTIVITY PROGRAM COSTS PUBLIC SECTOR JOB PUBLIC SECTOR WORKERS RATE OF RETURN RATES OF RETURN RATES OF RETURNS REAL WAGES RETIRED RETIRED INDIVIDUAL RETIREMENT AGE RETIREMENT AGES RETIREMENT BEHAVIOR RETIREMENT DECISION RETIREMENT DECISIONS RETIREMENT INCENTIVES RETIREMENT INCOME RETURN ON CONTRIBUTIONS RISK AVERSE INDIVIDUALS RISK AVERSION SALARIES SALARY SAVINGS RATE SECONDARY EDUCATION SERVANTS SKILLED LABOR SKILLS DEVELOPMENT SOCIAL COSTS SOCIAL INSURANCE SOCIAL SECURITY SOCIAL SECURITY CONTRIBUTIONS SOCIAL SECURITY SYSTEMS STOCKS SURVIVAL PROBABILITIES TAX TOTAL FACTOR PRODUCTIVITY TOTAL WAGE TRAINING INSTITUTION TYPES OF PENSION UNEMPLOYED UNEMPLOYED INDIVIDUALS VALUE OF CONTRIBUTIONS VALUE OF PENSIONS VOCATIONAL TRAINING WAGE WAGE BILL WAGE DIFFERENTIAL WAGES WITHDRAWAL WORTH YEARS OF SERVICE Bodor, András Robalino, David Rutkowski, Michal Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| relation |
Policy Research Working Paper; No. 4355 |
| description |
Mandatory pension systems play a major
role in individual savings and labor supply decisions. In
particular, it is well known that defined benefit pension
schemes, which are not actuarially fair, can create
incentives for early retirement and therefore reduce labor
supply and the stock of human capital in a given country.
This is an important policy issue in middle-income
countries, with still low participation rates in the labor
force, where the "window" opened by the
demographic transition is already closed or will close in
the near future. In these countries, policies to stimulate
private sector growth, competitiveness, and employment
creation should be accompanied by policies that increase
labor force participation, raising the ratio of active to
inactive population and therefore the potential for higher
income per capita growth. Unfortunately, the analytical
tools developed to assess pension reform options tend to
focus on the financial sustainability of the schemes and the
adequacy of benefits. Little attention is given in practice
to the social costs imposed by distortions on the supply of
labor. In part, this is given by the lack of analytical
tools that, in the context of limited information regarding
individual preferences and behavior, can be used to assess
the magnitude of these distortions. This paper develops
methodologies that can bridge the gap between economic
theory and the practices of pension policy personnel under
conditions of deep uncertainty regarding the variables
driving individual behavioral responses to policy changes.
First, the paper develops an indicator to predict the
age-specific retirement probabilities induced by a
particular pension system, given heterogeneous individual
preferences over risk, consumption, and leisure. The paper
then describes how this indicator can be used to project the
size of the labor force by gender, age and skill level and
therefore the dynamics of human capital accumulation. The
integration of these two analytical tools allow us to show
the impact of a particular pension reform proposals on the
dynamics of labor supply, human capital and, given the
dynamics of capital and total factor productivity, economic
growth. Furthermore, the paper develops a set of life-cycle
income measures for typical individual paths that allow us
to measure the contribution of segmented pension schemes to
the segmentation of the labor market. The methods are
applied to the case of Morocco. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Bodor, András Robalino, David Rutkowski, Michal |
| author_facet |
Bodor, András Robalino, David Rutkowski, Michal |
| author_sort |
Bodor, András |
| title |
Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| title_short |
Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| title_full |
Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| title_fullStr |
Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| title_full_unstemmed |
Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis |
| title_sort |
assessing the distortions of mandatory pensions on labor supply decisions and human capital accumulation : how to bridge the gap between economic theory and policy analysis |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2007/09/8323915/assessing-distortions-mandatory-pensions-labor-supply-decisions-human-capital-accumulation-bridge-gap-between-economic-theory-policy-analysis http://hdl.handle.net/10986/7348 |
| _version_ |
1764402380490670080 |
| spelling |
okr-10986-73482021-04-23T14:02:34Z Assessing the Distortions of Mandatory Pensions on Labor Supply Decisions and Human Capital Accumulation : How to Bridge the Gap between Economic Theory and Policy Analysis Bodor, András Robalino, David Rutkowski, Michal ACCRUAL RATE AGE GROUP AGE GROUPS AVERAGE EARNINGS BENEFIT FORMULA BENEFIT FORMULAS BORROWING CALCULATION CALCULATIONS CAPITAL GROWTH CAPITAL SHARE CAPITAL STOCK COMPENSATION PACKAGE CONTRIBUTION CONTRIBUTION RATE CURRENT PENSION CURRENT PROGRAM CURRICULUM DEFINED BENEFIT DEFINED BENEFIT PENSION DISCOUNT RATE EARLY RETIREMENT ECONOMIC BENEFITS ECONOMIC COST ECONOMIC COSTS ECONOMIC GROWTH ECONOMIC THEORY EDUCATIONAL ATTAINMENT EDUCATIONAL LEVEL EDUCATIONAL LEVELS EMPLOYEE FACTOR MARKETS FEMALE LABOR FEMALE LABOR FORCE FERTILITY FINANCIAL HEALTH FINANCIAL SUSTAINABILITY FORMAL LABOR MARKET FULL EMPLOYMENT FUTURE PENSIONS GOVERNMENT PENSION GOVERNMENT REVENUES HOUSEHOLD SURVEY HUMAN CAPITAL HUMAN DEVELOPMENT IMPLICIT INTEREST INCENTIVE PROBLEMS INCOME INCOME FLOW INCOME FLOWS INCOME GROUP INDIVIDUAL RETIREMENT INDIVIDUAL SAVINGS INFORMAL SECTOR INFORMAL SECTORS INTEREST RATE INTEREST RATES INTERNAL RATE OF RETURN INTERNAL RATES OF RETURN INTERNATIONAL BANK JOBS LABOR ECONOMICS LABOR FORCE LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKETS LABOR MOBILITY LABOR PRODUCTIVITY LABOR SUPPLY LABOUR LABOUR MARKET LACK OF PORTABILITY LEVEL OF DEBT LEVEL OF EDUCATION LEVEL OF RISK MANPOWER MANPOWER PLANNING MARGINAL COSTS MARKET DISTORTIONS MARKET SEGMENTATION MIDDLE EAST MOBILITY OF LABOR MORTALITY NORTH AFRICA OCCUPATION OCCUPATIONAL PENSION OCCUPATIONAL PENSION SCHEMES OCCUPATIONS OLDER WORKERS PENSION PENSION BENEFIT PENSION FUND PENSION FUNDS PENSION PLAN PENSION PLANS PENSION POLICIES PENSION POLICY PENSION REFORM PENSION REFORMS PENSION RIGHTS PENSION SCHEME PENSION SCHEMES PENSION SYSTEM PENSION SYSTEMS PENSION WEALTH PENSIONERS PENSIONS PRESENT VALUE PREVIOUS SECTION PRIMARY EDUCATION PRIMARY SOURCE PRIVATE SECTOR PRIVATE SECTOR JOB PRIVATE SECTOR PUBLIC PRIVATE SECTOR WORKERS PRIVATE SECTORS PROBABILITIES PROBABILITY PRODUCTIVITY PROGRAM COSTS PUBLIC SECTOR JOB PUBLIC SECTOR WORKERS RATE OF RETURN RATES OF RETURN RATES OF RETURNS REAL WAGES RETIRED RETIRED INDIVIDUAL RETIREMENT AGE RETIREMENT AGES RETIREMENT BEHAVIOR RETIREMENT DECISION RETIREMENT DECISIONS RETIREMENT INCENTIVES RETIREMENT INCOME RETURN ON CONTRIBUTIONS RISK AVERSE INDIVIDUALS RISK AVERSION SALARIES SALARY SAVINGS RATE SECONDARY EDUCATION SERVANTS SKILLED LABOR SKILLS DEVELOPMENT SOCIAL COSTS SOCIAL INSURANCE SOCIAL SECURITY SOCIAL SECURITY CONTRIBUTIONS SOCIAL SECURITY SYSTEMS STOCKS SURVIVAL PROBABILITIES TAX TOTAL FACTOR PRODUCTIVITY TOTAL WAGE TRAINING INSTITUTION TYPES OF PENSION UNEMPLOYED UNEMPLOYED INDIVIDUALS VALUE OF CONTRIBUTIONS VALUE OF PENSIONS VOCATIONAL TRAINING WAGE WAGE BILL WAGE DIFFERENTIAL WAGES WITHDRAWAL WORTH YEARS OF SERVICE Mandatory pension systems play a major role in individual savings and labor supply decisions. In particular, it is well known that defined benefit pension schemes, which are not actuarially fair, can create incentives for early retirement and therefore reduce labor supply and the stock of human capital in a given country. This is an important policy issue in middle-income countries, with still low participation rates in the labor force, where the "window" opened by the demographic transition is already closed or will close in the near future. In these countries, policies to stimulate private sector growth, competitiveness, and employment creation should be accompanied by policies that increase labor force participation, raising the ratio of active to inactive population and therefore the potential for higher income per capita growth. Unfortunately, the analytical tools developed to assess pension reform options tend to focus on the financial sustainability of the schemes and the adequacy of benefits. Little attention is given in practice to the social costs imposed by distortions on the supply of labor. In part, this is given by the lack of analytical tools that, in the context of limited information regarding individual preferences and behavior, can be used to assess the magnitude of these distortions. This paper develops methodologies that can bridge the gap between economic theory and the practices of pension policy personnel under conditions of deep uncertainty regarding the variables driving individual behavioral responses to policy changes. First, the paper develops an indicator to predict the age-specific retirement probabilities induced by a particular pension system, given heterogeneous individual preferences over risk, consumption, and leisure. The paper then describes how this indicator can be used to project the size of the labor force by gender, age and skill level and therefore the dynamics of human capital accumulation. The integration of these two analytical tools allow us to show the impact of a particular pension reform proposals on the dynamics of labor supply, human capital and, given the dynamics of capital and total factor productivity, economic growth. Furthermore, the paper develops a set of life-cycle income measures for typical individual paths that allow us to measure the contribution of segmented pension schemes to the segmentation of the labor market. The methods are applied to the case of Morocco. 2012-06-06T21:19:05Z 2012-06-06T21:19:05Z 2007-09 http://documents.worldbank.org/curated/en/2007/09/8323915/assessing-distortions-mandatory-pensions-labor-supply-decisions-human-capital-accumulation-bridge-gap-between-economic-theory-policy-analysis http://hdl.handle.net/10986/7348 English Policy Research Working Paper; No. 4355 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |