Working Paper: NBER ID: w8924
Authors: Sebastian Edwards; Alejandra Cox Edwards
Abstract: We analyze the way in which social security privatization reform affects labor market outcomes. We develop a model of the labor market where we assume that, as is the case in most emerging markets, a formal and an informal sectors coexist side by side. According to our model, a social security reform that reduces the implicit tax on labor in the formal sector, will result in an increase in the wage rate in the informal sector and will have an undetermined effect on aggregate unemployment. Results from simulation exercises suggest that in the case of Chile the reforms resulted in an increase in informal sector wages of approximately 2.0%. These results also suggest that the reforms made a positive, but small, contribution to the reduction of Chile's aggregate of unemployment.
Keywords: No keywords provided
JEL Codes: H55; J3; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in implicit taxes on labor in the formal sector (J46) | Increase in wages in the informal sector (J46) |
| Social security reform (H55) | Increase in wages in the informal sector (J46) |
| Social security reform (H55) | Modest positive impact on aggregate unemployment (F66) |