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At the beginning of June 2014, the Argentinean Government proposed a bill aiming at increasing the pension coverage to 100%. The bill has high chances of being approved. What should be expected from a new law which can affect up to 500,000 individuals? The new law will be an extension of the pension reform known as the “moratorium” or “housewives reform” adopted in 2004 and put into effect in 2007. In a recent paper, we analyze short-run direct effects of the original moratorium on the cohorts of women affected.1 Because of its design and amplitude, the moratorium represents a unique setting to study the impact of permanent shocks to women’s income. The results from our study—which will be discussed in two separate posts in this blog— gain policy relevance in the advent of the new moratorium. In today’s Part 1, we focus on the consequences of the reform for women’s absolute and relative income within the household. In Part 2, we will describe and discuss the effects of such a large increase in income on the probability of divorce/separation and on two outcomes that proxy bargaining power within the household namely, the probability of women being the head of the household, and the distribution of household chores.
Over the past two decades, several countries mainly in Latin America introduced non-contributory pensions to fight poverty and inequality. These programs which aim to extend pension coverage to individuals who failed to contribute to Social Security (SS from hereafter) rank amongst the most expensive social programs (Levy and Schady, 2013). Latin American women are particularly affected by these programs due to their low attachment to the labor market. Prior to the adoption of the moratorium in Argentina, pension coverage for women reached a low 55% in 2004 (and only 30% for married2 women) mainly due to low labor market participation (around 44% in the 80s, ILO 2011) and high informality.3 To curb this trend, the Argentinean Government approved a reform to the pension system (Law 25994) in December 2004, which allowed individuals, male and female alike, who had reached the retirement age—i.e. cohorts 1944 and older if females and cohorts 1939 and older if males— but did not fulfill the 30-year SS contribution requirement, to get a pension and health insurance coverage. The reform was implemented through a payment schedule, which was officially named “moratorium” and popularly known as “the housewives pension” because housewives were perceived as the group of the population that benefited the most.4 Individuals who had never contributed to the SS, for example, would receive a pension equivalent to 51% of the minimum pension during the first 5 years, i.e. 304 ARS in 2007 or 191 U.S. dollars PPP 20095 per month, and 596 ARS or 374 U.S. dollars PPP 2009 per month afterward. This minimum transfer was just enough to cover the basket of basic needs for an adult in Argentina in January 2007 which cost 295.89 ARS (Source: INDEC).
Law 25994 expired in April 2007 but the affected cohorts saw the possibility to apply for benefits under the moratorium extended permanently by the approval of another decree (1454/05 in December 2005). In addition, the decree also allowed younger cohorts to benefit from the moratorium although it established harsher conditions of access. Hence, the pension reform affected different cohorts differently: older cohorts --- e.g. females born in 1944 or earlier--- benefited relatively more than younger female cohorts.
As Figure 1 shows, the reform substantially increased the percentage of age-eligible individuals receiving a pension. Cleary, women benefited the most. As a consequence, there was a remarkable reduction in the percentage of women in their mid 60s without personal income, which in urban areas went from around 35% before the reform to about 10% after the reform (Figure 2). By 2009, the expenditures with the reform represented 2.4% of the GDP (Lustig and Pessino 2013) and by May 2010 more than 1,8 million women benefited from it (D'Elia et al. 2011).
Figure 1 also shows that the jump in the percentage of beneficiaries occurs only in 2007. The reason could lie in the absence of a regulation of the procedures to access a pension under the moratorium which was ultimately completed in July 2006.6 Until then there was virtually no media coverage of the reform as shown in Figures 3 and 4 in our working paper. Hence, it is unlikely that the affected cohorts could have anticipated the increase in their income and modify their behavior in advance of the benefits.
Figure 1: Pension recipients (as a % of age-eligible individuals in urban areas)
Source: Authors' computation using data from the Encuesta Permanente de Hogares Continua (EPH)
Figure 2: Percent of women and men with no income by age before (2004-2006) and after (2007-2009) the reform.
Source: Authors' computation using data from the Encuesta Permanente de Hogares Continua (EPH).
Our empirical exercise focuses on the effects of the reform on those cohorts that benefited the most i.e., cohorts born before 1944, which in May 2010 represented over 500,000 women (D'Elia et al. 2011). These are the cohorts that upon the reform were entitled to a pension without ever having to contribute to the social security. Our estimates are obtained by comparing the evolution of income indicators before and after the reform for these cohorts to the income evolution of younger cohorts who were still not affected by the reform.7
Our results show that women born in 1944 or earlier increase their probability of receiving a pension by 145% after the reform (or 43 percentage points). This implied a decrease in the probability of having zero income of 67% (or 27 percentage points) and an average increase in monthly income of 68 USD PPP 2009 when compared to a situation without the reform. More interesting for our purposes is the even higher income effects obtained in the sample of married women where the wife’s share in the household's and the couple's income increased by 55 and 50 % respectively (or 10 and 11 percentage points).
The introduction of non-contributory pensions (or similar programs), are not gender neutral. Therefore, these reforms do not only redistribute income between households but also within households, by changing the relative income of spouses usually in favor of women. Our study shows evidence that this Argentinean pension reform produced an important and rapid change in the role of elder women as a contributor of income in the household, and we would expect similar effects from the future extensions of it.
4. The payment schedule consisted of paying back to the SS the amount corresponding to the number of years (up to 30) the individual had failed to contribute subject to a cap. The debt to the SS would be paid in up to 60 monthly installments and was deducted directly from the individual's monthly pension benefit. The law established a maximum deduction of 49% (Lustig and Pessino 2013).
7. We use a simple differences-and-differences methodology where we compare cohorts 1941-1944 with cohorts 1950-1953 during 2004-2009. We treat 2004-2006 as the pre-treatment years and 2007-2009 as the post-treatment years.
D’Elia, V. V., A. Calabria, A. Calero, J. Gaiada, and S. Rottenschweiler (2011): “Análisis de la cobertura previsional del SIPA: protección, inclusión e igualdad,” Serie Estudios de la Seguridad Social, Gerencia Estudios de la Seguridad Social, ANSES
ILO (2011): “Key Indicators of the Labour Market (KILM) 6th edition.”
Levy, S. and N. Schady (2013): “Latin America’s Social Policy Challenge: Education, Social Insurance, Redistribution,” Journal of Economic Perspectives, 27, 193–218.
Lustig, N. and C. Pessino (2013): “Social Spending and Income Redistribution in Argentina During the 2000s: The Rising Role of Noncontributory Pensions,” Working paper, Commitment to Equity.