Pension Reform and Self-Employment in Latin America

Juan Pablo Martinez Guzman and Travis St.Clair
Review of Development Economics

Public pension systems in Latin America have historically suffered from low coverage, with a relatively small percentage of the labor force eligible for benefits in retirement. In recent years, many governments have implemented reforms aimed at expanding the percentage of citizens that are benefit-eligible. In this paper, we classify and evaluate pension reforms in four Latin American countries, focusing specifically on policies aimed at expanding coverage among the large share of Latin Americans that operate as self-employed workers. The reforms that we examine range from those linked to simplified tax regimes to those that provide pension-specific subsidies. With the exception of a 2006 reform in Costa Rica that subsidized pension contributions at progressive rates, we find no evidence that any of these reforms increased coverage. Our results highlight the opportunity costs to low-income workers of paying into the system, which include foregoing eligibility for less generous, non-contributory pensions.

Wagner Faculty