Dynamic Incentives in Retirement Earnings-Replacement Benefits

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Material type: Text

TextPublication details: The Review of Economics and Statistics; 2024Description: 762-777ISSN:

0034-6535

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Summary: We analyze dynamic incentives in pension systems created by the use of a small set of final years of earnings to compute benefits. Using social security records and household surveys from Uruguay, we show that self-employed workers and some employees of small firms respond to these incentives by increasing reported earnings in the benefit calculation window. We find evidence that suggests that these responses are explained by changes in earnings reporting and not in total earnings or labor supply. Back-of-the-envelope calculations indicate that this behavior increases the cost of pensions by about 0.2% of the GDP.

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Holdings
Item type	Current library	Call number	Vol info	Status	Date due	Barcode
Article Index	Dr VKRV Rao Library		Vol. 106, No. 3	Not for loan		AI367

We analyze dynamic incentives in pension systems created by the use of a small set of final years of earnings to compute benefits. Using social security records and household surveys from Uruguay, we show that self-employed workers and some employees of small firms respond to these incentives by increasing reported earnings in the benefit calculation window. We find evidence that suggests that these responses are explained by changes in earnings reporting and not in total earnings or labor supply. Back-of-the-envelope calculations indicate that this behavior increases the cost of pensions by about 0.2% of the GDP.

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