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Research Seminar: Lessons from Pension Reform in Latin America: Getting Self-employed Individuals to Join Pension Systems

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Speaker: Juan Pablo Martinez Guzman, Assistant Research Professor, UMD School of Public Policy

Abstract: Public pension systems in Latin America have historically suffered from low coverage, meaning not only that a relatively small percentage of the labor force makes regular contributions, but also that the percentage of retirees that are eligible for benefits is limited. In recent years, many governments have implemented reforms aimed at expanding the percentage of citizens that are benefit-eligible. These reforms have primarily been targeted at the large share of Latin Americans that operate as self-employed individuals, where only one in ten laborers have access to public pensions. In this paper, we classify and evaluate pension reforms in half a dozen Latin American countries, focusing specifically on policies aimed to expand the number of self-employed making regular contributions. The reforms that we examine vary widely, ranging from those linked to simplified tax regimes, to systems of matching contributions in which informal workers make minimal payments. We find little evidence that any of these reforms have had a significant impact. To explain our findings, we draw on models of benefit take-up in informal labor markets.

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