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Male labor force participation and social security in Mexico*

Published online by Cambridge University Press:  14 October 2013

EMMA AGUILA
EMMA AGUILA*
Affiliation:
RAND Corporation, 1776 Main Street, Santa Monica, CA 90401-3208, USA (e-mail: [email protected])
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Abstract

Labor force participation among Mexican males in their early retirement years (60–64 years of age) has decreased in recent decades, from 94.6% in 1960 to 65.2% in 2010. Similar trends are evident elsewhere in Latin America, and have occurred in the developed world. Such trends pose challenges to the 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 to the new Personal Retirement Accounts (PRA) system and we find that the PRA system also provides incentives for 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

J26J22J14Retirement incentiveslabor force participationsocial security system
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 13 , Issue 2 , April 2014 , pp. 145 - 171
Copyright
Copyright © Cambridge University Press 2013 

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Footnotes

*

I am grateful for the advice and support of Costas Meghir. I also wish to thank Orazio Attanasio, James Banks, Arie Kapteyn, Gabriel Martinez, James P. Smith, Arthur Van Soest, Shelley Wiseman, and anonymous referees for their valuable comments, Beth Soldo and Rebeca Wong for access to, and their advice on, the MHAS data sets, and Nelly Mejia and Alfonso Rivera for their excellent research assistance. This study was supported by CONACYT and the National Institute of Aging (NIA) funded program project ‘International Comparisons of Well-Being, Health and Retirement’ 2P01AG022481-06.

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