IMF Working Papers

Social Security Reforms, Retirement and Sectoral Decisions

By Bruno R. Delalibera, Pedro Cavalcanti Ferreira, Rafael Machado Parente

January 31, 2025

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Bruno R. Delalibera, Pedro Cavalcanti Ferreira, and Rafael Machado Parente. "Social Security Reforms, Retirement and Sectoral Decisions", IMF Working Papers 2025, 032 (2025), accessed March 4, 2025, https://doi.org/10.5089/9798229000222.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In many countries, the regulations governing pension systems, hiring procedures, and job contracts differ between the public and private sectors. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a general equilibrium life-cycle model with heterogeneous agents, three sectors - private formal, private informal and public - and endogenous retirement. We quantitatively assess the long-run effects of reforms being discussed and implemented around the world. Among them, we study the unification of pension systems and increasing the minimum retirement age. We calibrate our model to Brazil, where several of the retirement conditions resemble those of other countries. We find that these reforms lower the likelihood of individuals to apply to a public job and increase the profile of savings over the life cycle. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit.

Subject: Aging, Economic sectors, Labor, Population and demographics, Public sector, Retirement

Keywords: Aging, East Asia, Global, Informality, Public deficit, Public employment, Public sector, Reform experiment, Retirement, Retirement condition, Retirement decision, Social security deficit, Social security reform

Publication Details

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