The evolution of retirement in Brazil

Type Working Paper
Title The evolution of retirement in Brazil
Publication (Day/Month/Year) 2006
There is widespread concern about how demographic changes, especially population aging,
affect macroeconomic variables and public sector fiscal balance. A second related question is
how the provision of social security benefits affects retirement decisions of older workers
(Wise, 2004). The literature on this topic in developed countries is extensive (Costa, 1998;
Burtless & Quinn, 2001; Gruber & Wise, 1999). People know a great deal about retirement
behavior in different developed countries around the world. There are two main explanations
for early retirement in developed countries. First, the existence of generous public pension
systems (Gruber & Wise, 1999; 2004), and second, higher income and expansion of the leisure
class (Costa, 1998). Population aging combined with early retirement has put social security
systems across the industrialized world under pressure. Legislation changes have taken center
stage in public policy debates in recent years (Diamond, 2004; Wise, 2004).

Despite unabated interest among researchers in issues pertaining to the impacts of social
security provision to retirement behavior, little is known about these issues in emerging
economies. Brazil is one example of an important context for elaborating linkages between
pension benefits provision and retirement behavior. The rapidly aging population presents one
of the greatest public policy challenges in Brazil. Compared to other emerging economies,
Brazil is distinct for combining a relatively large public sector with rapidly aging population
and declining labor force participation at older ages. The percentage of individuals age 65 and
over is estimated to be 18% in 2050, compared to 3% in 1970 (UN, 2003). These changes in
population age structure may impose severe pressures on the public sector (Bongaarts, 2004).
At the same time, the length of working life has fallen over time, which results from both
increases in educational attainment (younger workers) and changes in retirement behavior
(older workers). The fall in economic participation for older workers (65 and older) is striking:
30% of them were in the labor force in 2000 compared to 60% in 1970. In 2002, social security
benefits and other forms of elder support represented about 12% of the GDP (Brasil, 2003) and
are expected to be the fastest growing component of public spending (Giambiagi & Além,
1997; Giambiagi & Castro, 2003).

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