Department of Economics Seminar Series: The Impact of Pension Systems in Labor Markets with Informality

We invite you to our Economics Department seminar series, which continues with its second talk this Friday, March 22 from 11:00am-12:00pm in SSPA-204. Our speaker will be Dr. Carla Moreno who will present a paper entitled “The Impact of Pension Systems in Labor Markets with Informality” (flyer attached).

Dr. Moreno is an Assistant Professor in the Department of Economics at Loyola Marymount University. Her research interests lie at the intersection of savings, social security systems and labor markets.

Dr. Moreno’s talk will delve into the impact of pension systems in economies with large informal labor markets using Peru as a case study. In particular, she will show that mandatory contributions increase the likelihood of individuals choosing to work in informal jobs. In addition, removing contributory pension systems increases formal job market participation and improves welfare. Please see the abstract below for more details.

“This paper examines the impact of pension systems in economies with large informal labor markets using Peru as a case study. In these economies, mandatory participation in contributory pension systems can only be enforced on formal-sector workers. As a result, the design of the pension system can have an important impact on workers’ decisions to work in the formal sector. I develop a heterogeneous agent life-cycle, overlapping generations (OLG) model where informality arises endogenously as workers choose their optimal working sector each period. In the model, formal workers choose between a pay-as-you-go and an individual-account pension system, while the government finances a non-contributory means-tested pension for the poor and uncovered elderly. Workers in the economy face earnings and job separation risks. The mandatory contributions formal workers make to the pension system impose a liquidity constraint on lower income workers making them more likely to choose informal jobs. I show that both types of contributory pension systems present in the model affect labor decisions and that removing them increases formality and is welfare improving. Without any contributory pension system, the number of elderly individuals receiving the non-contributory social pension expands, but the government has a larger tax base of formal workers to offset financing this increase.”

I look forward to seeing you there for what promises to be an interesting and informative presentation! More information concerning this and other presentations for this semester can be found on the Economics Department website (https://cla.csulb.edu/departments/economics/seminar-series/).