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. 2014 Apr;13(2):145-171.
doi: 10.1017/S1474747213000292.

Male Labor Force Participation and Social Security in Mexico

Emma Aguila

Male Labor Force Participation and Social Security in Mexico

Emma Aguila. J Pension Econ Financ. 2014 Apr.

Abstract

Labor-force participation among Mexican males in their early retirement years (60 to 64 years of age) has decreased in recent decades, from 94.6 percent in 1960 to 65.2 percent in 2010. Similar trends are evident elsewhere in Latin America, and have occurred in the developed world. Such trends pose challenges to financial sustainability of social security systems as working-age populations decrease and those in retirement increase both because of demographic trends and decisions to take early retirement. In this study, we find that the Mexican social security system provides incentives to retire early. The retirement incentives of the Mexican social security system affect retirement behavior, and may be one of the main contributors to early retirement decisions, particularly for lower-income populations. We simulated the effect of the reform from a Pay-As-You-Go (PAYG) to the new Personal Retirement Accounts (PRA) system and we find that the PRA system also provides incentives to early retirement. Further analysis is needed to assess the financial sustainability of the social security system and financial security in old age for the largest cohorts in Mexico that will begin to retire by 2040.

Keywords: Labor Force Participation; Retirement Incentives; Social Security System.

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Figures

Figure 1
Figure 1. PAYG replacement rate by selected levels of labor income
Source: The authors
Figure 2
Figure 2. Hazard rates by age in the PAYG and PRA systems
Notes: Individuals in the PAYG system can only start claiming benefits at age 60. Source: The authors
Figure 2
Figure 2. Hazard rates by age in the PAYG and PRA systems
Notes: Individuals in the PAYG system can only start claiming benefits at age 60. Source: The authors
See this image and copyright information in PMC

References

    1. Aguila Emma. Personal Retirement Accounts and Saving. American Economic Journal: Economic Policy. 2011;3(4):1–24. - PMC - PubMed
    1. Aguila Emma, Diaz Claudia, Manqing Fu Mary, Kapteyn Arie, Pierson Ashley. Living Longer in Mexico: Income Security and Health. RAND Corporation; 2011. Available at: http://www.rand.org/pubs/monographs/MG1179. - PMC - PubMed
    1. Aguila Emma, Hurd, Michael D, Rohwedder Susann. Transition from a DB to a DC Plan: The Effect of Fees In Pension Wealth Accumulation. RAND Corporation; 2012. mimeo.
    1. Alvarez Ignacio, Da Silva Natalia, Forteza Alvaro, Rossi Ianina. El Retiro de los Trabajadores Uruguayos y la Seguridad Social. Revista de Economía, Banco Central del Uruguay. 2009;16(2)
    1. Alvarez Ignacio, Da Silva Natalia, Forteza Alvaro, Rossi Ianina. ¿Qué incentivos al retiro genera la seguridad social? El caso uruguayo. Cuadernos de Economía. 2010;47:217–247.

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