Publication: Federative Republic of Brazil - Social Insurance and Labor Supply : Assessing Incentives and Redistribution
Date
2009-12-30
ISSN
Published
2009-12-30
Author(s)
World Bank
Abstract
This technical report analyzes the
potential effects of the pensions and income protection
systems on labor supply decisions and through this channel
the coverage and cost of the programs. The report addresses
five policy questions: (i) how is the pension system
influencing decisions regarding entry into the labor market,
sector choice (formal/informal), and retirement? (ii) How
are current income protection programs affecting turnover;
job search efforts and sector choice?; (iii) Are there
interactions between the two systems that aggravate or
mitigate incentive effects?; (iv) What is the role of
redistributive policies in determining observed outcomes?;
and (v) Are there policy interventions that could be
considered to correct incentives, while securing adequate
income protection for different population groups (including
workers in the informal sector)? The report is organized in
three sections. This first section discusses the
motivations for the study and sets the context by briefly
describing some key stylized facts about the Brazilian labor
market. The focus is on the composition of the labor force,
its distribution by occupational categories, unemployment
risks, and transitions between employment states including
workers flows between the formal and informal sectors. The
second section analyzes the Brazilian social insurance
system in terms of incentives and redistribution. It starts
with an overview of institutional arrangements, programs,
and financing mechanisms, which flags the problem of a high
tax-wedge. The report then analyzes the rules of the
pensions and income protection systems and their potential
effects on behaviors. The final section proposes a policy
framework to guide reforms that could 'correct'
incentives by making redistribution more transparent and
progressive. A behavioral life-cycle model estimated for
Brazil is used to illustrate how the application of this
framework could affect contribution densities (and therefore
the time spent working in formal sector jobs), retirement
ages, savings, and programs cost. A companion policy note
on social insurance and labor supply summarizes the main
conclusions and recommendations from the analysis.
Citation
“World Bank. 2009. Federative Republic of Brazil - Social Insurance and Labor Supply : Assessing Incentives and Redistribution. © Washington, DC. http://openknowledge.worldbank.org/entities/publication/5ff01433-1316-5b39-a363-9e5d0f38e6dd License: CC BY 3.0 IGO.”