In his forthcoming book on the Chilean reforms, Edwards is clear that the social security reforms did not succeed. He gives the following reasons (a partial and incomplete summary): 1. “At 10 percent of wages, the rate of contribution was obviously too low. The average for the OECD countries was 19 percent.” Accumulated funds ended
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In his forthcoming book on the Chilean reforms, Edwards is clear that the social security reforms did not succeed. He gives the following reasons (a partial and incomplete summary):
1. “At 10 percent of wages, the rate of contribution was obviously too low. The average for the OECD countries was 19 percent.” Accumulated funds ended up being too low.
2. The system assumed a static labor market, where workers stayed in the formal sector for 30 to 50 years.
3. Workers were never quite sure if they really were going to get the funds, or if they just were paying another tax.
4. Workers’ representatives were not included on the relevant program boards, and so workers felt little stake in the system.
5. The number of retirement years rose dramatically, due in part to rising life expectancy. Yet the system made no adjustment for this, requiring a certain amount of savings to be stretched out to finance a growing number of years.
6. Management fees were very high, and this became a major issue when equity returns fell.
Here is my earlier post on the book — The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, one of the must-reads of the year.
The post Sebastian Edwards on Chilean social security reform appeared first on Marginal REVOLUTION.
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