Reforms to an individual account pension system and their effects on work and contribution decisions: The case of Chile

This study evaluates the effect of Chile\u27s pension system rules and regulations on individuals\u27 contribution and working decisions. In 1980, Chile was the first country to switch from a pay-as-you-go system to a privatized system based on individual investment accounts; since then, it has been a model for pension reforms in many other Latin American countries. The Chilean system has also been considered by U.S. policy makers as a possible prototype for reform. This dissertation develops and estimates a dynamic behavioral model of individual decision-making about covered or uncovered sector employment and about pension contributions, accounting for regulations that govern the timing and level of pension benefits. Model parameters are obtained by the method of simulated maximum likelihood applied to longitudinal data from a new household survey, the Social Protection Survey (2002 to 2004), and administrative data from the pension regulatory agency. The estimated model is used to simulate the impact on employment and contribution patterns of changing the system rules. Reducing the number of quarters required to obtain the Minimum Pension and increasing the size of that pension increases work in the covered sector and contributions in the uncovered sector. In both cases, government spending on the Minimum Pension program also increases