Labor market, pensions and social protection in Latin America: an overview

Carlos Grushka

Expert Group Meeting on“Full Employment and Decent Work”

Policies to promote social protection for all2-4 October 2007, United Nations, New York

2

Stylized facts in Latin America Low proportion of workers contributing to SS

Growing informal labor market Slow growth and unfavorable labor dynamics

Slow job creation Low formalization and expansion of salaried

employment Worsening labor conditions

Tax-based pension systems with financing difficulties, low coverage and quality

Similar problems do not imply unique strategies

3

Occupational distribution in Latin America (ILO, 2003)

Structure of non-agricultural employment

Self employed; 24,4

Domestic service; 7,0

Small enterprises w/5- employees;

16,0Public sector; 13,7

Private enterprises w/6+ employees;

38,9

4

Social security coverage (% of contributing workers) in Latin America (c. 2003)

Proportion of workers contributing to SS, by category

38,7

45,4

21,9

68,2

21,7

13,5

0

10

20

30

40

50

60

70

Total Urban Rural Urbanformal

Urban informalemployees

Urban informalself-employed

%

5

SS coverage by household income (Latin America, c.2003)

Workers contributing to SS, by quintile of household income

0

10

20

30

40

50

60

70

1 2 3 4 5

Quintile

% o

f w

orke

rs w

ith c

ontr

ibut

ions

6

7681 83

25

40

28

1512

6

23

16

43

2227

12

26

40

91 93

0

10

20

30

40

50

60

70

80

90

100

Arg

entin

a

Boliv

ia

Bra

sil

Chile

Colo

mbia

Costa

Ric

a

Ecuador

El S

alv

ador

Guate

mala

Hondura

s

Méxic

o

Nic

ara

gua

Panam

á

Para

guay

Perú

Repúblic

a D

om

inic

ana

Uru

guay

Venezuela

(R

ep. B

oliv

ariana d

e)

Am

érica L

atin

a

Pers

onas

que reci

ben

jubila

ciones

o p

ensi

ones

(%)

Elderly (70 and over) with income from pensions (%)

Only 40% of the elderly receive pensions in Latin America (c.2002)

7

Aging in Latin America has begun recently but it will grow relatively fast

Age dependency index 65+ / 25-64 (%)

0

10

20

30

40

50

60

World MDC LDC LatinAmerica

1950

2000

2050

Source: UN (2005)

8

Heterogeneous Pension Systems in Latin America

SS development

Countries Characteristics

Established at the beginning of 20th C.

Start with the more organized working activities

Increased gradually with many subsystems

Significant stratification

Started during the 1930s,1940s and 1950s

More influenced by Beveridge

Greater uniformity that in pioneering countries

Established during the 1960s and 1970s

Greater uniformity but less development

Uruguay, Argentina, Chile, Cuba, Brazil

Early

LateDominican Rep., Guatemala,

El Salvador, Nicaragua, Honduras, Haiti

Intermediate

Costa Rica, Panama, Mexico, Peru, Colombia, Bolivia,

Ecuador, Paraguay, Venezuela

9

Fully Funded Systems in Latin America

10 out of 20 countries introduced fully funded individual accounts

FF insteadof PAYG

Chile 1981, Bolivia 1997, Mexico 1997, El Salvador 1998, Dominican Rep. 2003

FF or PAYG

Peru 1993, Colombia 1994

FF and PAYG

Argentina 1994, Uruguay 1996, Costa Rica 2001

PAYGBrazil, Cuba, Ecuador, Guatemala, Haiti, Honduras, Nicaragua, Panama, Paraguay, Venezuela

10

Pension systems: challenges in Latin America

Strengthen coverage in contexts of low levels of savings and facing :

Aging and low SS coverage (contributive or not)

Contributive systems are segmented and facing financial solvency problems

Fiscal difficulties to finance tax-based pensions

11

Lack of coverage is not due to lack of working activity (in Argentina)

Work and SS contribution history by SS coverage

0

5

10

15

20

25

30

No Yes TotalSS coverage

Reported years of work

Reported years of contribution

Population 65+, ETEEP 2003

12

Pensions play a significant role reducing poverty among the elderly

Social security impact on poverty ratesUrban centers EPH, Argentina, 1st semester 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Totalpopulation

Population65+

65+ with SScoverage

65+ withoutSS coverage

Simulated65+ withoutSS benefits

Pov

erty

rat

e

13

Policy options to expand coverage

Increase coverage for the elderly through tax-based benefits

Stimulate participation in contributive pension systems keeping some redistribution

Take into account financial viability and transition costs (notional accounts?)

Promote unified systems

14

• Bolivia established an ‘universal’ pension (with severe financing and administrative problems)

• Brazil established a ‘semi-contributive’ pension mainly for rural workers (with many collateral benefits!)

• Chile is strengthening the tax-based pensions trying to integrate them in a SS unified system

• Argentina has recently attempted a very original and complex way

Alternatives to increase coverage: few experiences in Latin America

15

• Regulation was passed allowing “to buy” a contributive pension by recognizing the debt for the lack of enough periods with contributions

• This debt is paid through a discount on the new benefit

• During the last year, 1.5 million new pensions were granted (50% growth), with an estimated annual cost of 1% of GDP

• Coverage increased significantly reaching almost 90% of the elderly

Recent changes in Argentina (with very few data available!)

16

The new spending is funded by: • the economic growth• strengthening the PAYG public regime (from the FF)• the loss of purchasing power for previous pensions (after the crisis the minimum pension was given priority)

SS legal framework (theory) keep the Bismarckian model, but practice tends to follow Beveridge

Perspectives are unclear given the claims for indexation of benefits and the very limited improvement in the labor market

Financing the growth of coverage and expected trends

Thank you!

Carlos Grushka

cgrushka@safjp.gov.ar