The Informal Economy and the Constraints That It Imposes On Contributions in Latin America

Type Journal Article - Review of Business and Economics Studies
Title The Informal Economy and the Constraints That It Imposes On Contributions in Latin America
Author(s)
Issue 4
Publication (Day/Month/Year) 2014
URL https://cyberleninka.ru/article/n/the-informal-economy-and-the-constraints-that-it-imposes-on-pensio​n-contributions-in-latin-america
Abstract
Low contribution Levels to pension schemes in Latin America are an enormous obstacle Limiting the implementation of a broad-based social security system. Contribution rates measured as a ratio of contributors to the total labor force stand at an average of 40%, or 60% in the best of cases. Although previous studies explain this situation by factors related to growth, economic institutions and market considerations, only a few studies have quantified the specific determinants behind this problem. This study therefore aims to approach the subject by exploring the national household surveys for Brazil, Chile, Colombia, Mexico and Peru. Once the specific question relating to pension contributions has been identified in the surveys, probit models are used to estimate the probability that this event may occur, conditioned by the variables that theory considers as explanatory. The study finds the enormous relevance of labor markets as a common conditional factor affecting the likelihood to contribute to any pension system in Latin America. Working in the informal economy, being a self-employed worker or working in a micro-enterprise are particularly significant and show the highest coefficients in this geographical region. The high impact of these variables may give clues for economic policy in its search for eliminating the hurdles in labor market distortions that limits the impact of social security programs.

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