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papers also available at http://papers.ssrn.com/author=158548
at the Social Science Research Network Website
"A Global Perspective on Old Age Security Systems." In Encyclopedia of Global Studies. Ed. H. Anheier, V. Faessel, M. Juergensmeyer. New York: Sage Publications. Forthcoming 2012.
"Gender Issues in NDC Systems." in Conference Volume on Non-Financial Defined Contribution (NDC) Systems. Ed. R. Holzmann and E. Palmer. Washington DC: World Bank. Forthcoming 2012.
NDC plans are not generically biased for or against women. However, the way they are implemented can affect men and women differently, due to their differing employment and demographic trajectories. On the one hand, compulsory annuitization together with the required use of unisex tables in the NDC pillar and minimum or flat pensions in the safety net pillar favor women. On the other hand, the absence of an increase in real NDC pensions over the retirement period, the move toward price indexation of the safety net benefit, the shift from pure to phased-out flat pensions and cutbacks in survivors' benefits will have negative consequences for women, especially very old women, in most NDC countries. While the NDC pillar was designed to encourage work, disincentives for women remain through the earlier legal retirement age for women (in Poland), the high implicit tax in systems with phased-out flat or minimum benefits, and arrangements that force widows to choose between their own contributory pensions and survivor's pensions.
"Public Policies Toward Older Women in an Aging Society." The Journal. AARP. 2011.
"Impact of Social Security Reform on Labor Force Participation Rates of Pensioners and Non-Pensioners: Evidence from Chile." Journal of Human Capital 4(2). 2010 (co-author Alejandra Cox Edwards).
Recent research argues that pension systems influence the worker's decision to retire. The experience of Chile, which radically changed its pension system in 1981, offers an opportunity to test this hypothesis. Chile shifted from a defined benefit plan to an actuarially fair defined contribution plan, exempted pensioners from the pension payroll tax and tightened early retirement restrictions. Using probit analysis of the behavior of 50 cohorts followed through 47 household surveys, we estimate the impact of the 1981 reform on the probability of dropping out of the labor force, for older male workers. We find large effects: Labor force participation rose dramatically among cohorts who approached retirement age after 1981, in contrast to the decline observed before. The increase was concentrated in pensioners, who were exempt from the pension payroll tax. Tighter early retirement pre-conditions led to postponed pensioning, which further increased aggregate participation rates.
"The Impact of Private Participation and Countervailing Information on Disability Costs: Evidence from Chile" Journal of Pension Economics and Finance. 2009. (co-authors Augusto Iglesias and Alejandra Cox Edwards)
Many social security systems face high and escalating disability costs. In Chile, the disability assessment procedure includes participation by private pension funds and insurance companies, who finance the benefit and have a direct pecuniary interest in controlling costs. We hypothesize that these procedures and incentives will keep costs low, by cutting the incidence of successful claims. Using the Cox proportional hazard model and a retrospective sample of new and old system affiliates (EPS 2002), we find that disability hazard rates are only 20-35% as high in the new system as in the old. Analysis of mortality rates suggests that the new system has accurately targeted those with more severe medical problems.
"Disability Insurance with Pre-Funding and Private Participation: the Chilean Model." In Funded Systems: Their Role in Solving the Pension Problem. FIAP. Santiago, Chile. 2008. (longer version also available as World Bank Social Protection Working Paper 0801.(co-authors Augusto Iglesias and Alejandra Cox Edwards)
The disability insurance system in Chile is much less well-known than the pension part, but it is equally innovative. It differs from traditional public disability insurance in two important ways: 1) it is largely pre-funded--through the accumulation in the retirement account and later through an additional payment made when the person becomes permanently disabled, sufficient to cover a lifetime defined benefit annuity; and 2) the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit and have a direct pecuniary interest in controlling costs. We argue that pre-funding will raise disability fees in the early years of a new system as funds are built up but reduce them in the long run as benefits are covered out of accumulated funds. We further hypothesize that the participation of private pension funds in the assessment procedure will keep system costs low, by cutting the incidence of successful disability claims. Finally, we expect that these incentives will also lead to cost-shifting--to other AFP's by selection and to the public treasury via the minimum pension guarantee. Using simulations and applying the Cox proportional hazard model to a retrospective sample of new and old system affiliates, we conclude that these hypotheses are broadly consistent with observed behavior.
"The Payout Stage in Chile: Who Annuitizes and Why?" in Journal of Pension Economics and Finance. Spring 2006.
(co-authors Guillermo Martinez and Augusto Iglesias)
Retirees in Chile have a choice between early (before age 65) versus normal retirement (after age 65) from the system and between annuitization versus programmed withdrawals (PW); lump sum withdrawals are largely ruled out. Almost two-thirds of all retirees have annuitized—a very high proportion compared with other countries. This paper argues that these annuitization patterns are the result of guarantees and regulations that constrain payout choices, insure low earners through the minimum pension guarantee (MPG), eliminate other DB components, and give a competitive advantage to insurance companies selling annuities. These policy choices encourage annuitization and also shape which workers will annuitize. The MPG financed by the government provides insurance to workers with small accumulations, who retire at the normal age with PW, while those with large accumulations retire early and must purchase annuities to acquire longevity and investment insurance. Insurance companies further induce annuitization by marketing aggressively, facilitating early retirement for those who annuitize, and offering a high money's worth ratio for price-indexed annuities. The Chilean case demonstrates that the devil is in the details. If carefully chosen, policies can create incentives that lead to a high annuitization rate in individual account systems.
- "Financial Changes Facing Baby Boomer Women"
(in The Age Explosion: Baby Boomers and Beyond,
Harvard University Press, 2003)
What can baby boomer women to do prepare themselves for a retirement period that may last longer than
ever—as people live longer than ever? What public policies will help them to prepare?
Gender Impact of Pension Reform: A Cross-Country Analysis"
(modified version of paper in Journal of Pension Economics and Finance,
July 2003 — approx. download: 1.2MB)
(co-authors Alejandra Cox Edwards and Rebeca Wong)
(Updated version also available as "The Gender Impact of Social Security Reform in Latin America.
in "Lessons on Pension Reform in the Americas." ed. S. Kay and T. Sinha. New York: Oxford University Press. 2007.)
security systems may have a different impact on the two genders because
women are less likely than men to work in formal labor markets, earn
lower wages when they do, and live longer after retirement. This paper
examines the differential impact on men and women of the old and new
reformed systems in three Latin American countries—Chile, Argentina
and Mexico. Based on household survey data, we simulate the wage and
employment histories of representative men and women, and the pensions
that these are likely to generate under the new and old rules. We
ask: What are the relative monthly and lifetime benefits of men and
women in the new systems? How are these outcomes shaped by transfers
from the public pillar and from joint annuities? What are the relative
gains or losses of men and women, due to the shift from the old to
the new systems? Which sub-groups within each gender benefit and lose
the most from the reform and from redistributions under the new systems?
What are the key policies that determine these gender outcomes? The
analysis shows that low earning women are the biggest gainers from
the pension reform. This is due to the redistributive public pillar
and the joint annuity requirement. In contrast to some traditional
systems, working women keep both their own pension and the survivor's
benefit, which enhances their relative position and encourages them
to participate in the labor force.
Click here for an
expanded version (approx. download: 3MB) of this study.
Security: Its Problems and How to Solve Them."
in Perspectives on Work, Dec. 2002
(magazine of Industrial and Labor Relations Association).
2001 President Bush appointed a Commission to recommend how we could
best solve social security’s looming financial problems. This
note summarizes the Commission’s report and my own views, as
a member of that Commission.
Annuity Market in India: Do Consumers Get Their Money's Worth? What
are the Key Public Policy Issues?" (co-author Renuka Sane). in Rethinking Pension Provision in India ed. Gautam Bhardwaj and Anand Bordia, Tata McGraw Hill, New Delhi, 2003.
paper analyses the annuities market in India. It focuses on the analysis
of the expected present discounted value (EPDV) of cash flows from
annuities, and the money's worth ratio (MWR), which is the EPDV divided
by the initial premium cost. It analyses the industry’s pricing
response to changes in interest rates and projected mortality, during
the past year. It points to several key weaknesses in the annuities
market that need to be corrected to enable the development of a healthy
annuity industry in India. It also summarizes some of the key policy
choices that must be made to enable it to play an effective role in
the broader pension reform.
Can China Solve its Old Age Security Problem? The Interaction Between
Pension, SOE and Financial Market Reform " Journal
of Pension Economics and Finance, 2002
is aging more rapidly than practically any other country. For this
and other reasons its pay-as-you-go social security system faces grave
fiscal problems. The Chinese government is committed to reforming
the system by prefunding part of it through individual accounts. However,
in China these reforms are retarded by: (1) the difficulty in covering
transition costs; (2) fragmentation and decentralized administration;
and (3) public management of funds and low rates of return. This paper
focuses on these three issues as well as the complex interactions
between pension, financial market and SOE reform.
Markets Around the World: Moneys Worth and Risk Intermediation"
(co-authors Xue Song and Dimitri Vittas) presented
at the American Economic Association meetings, January 2001 and the
World Bank Pension Research Conference, September 1999.
Related version published as: “Annuities Markets in Comparative Perspective: do Consumers get their Money’s Worth?” in Private Pensions Systems: Administrative Costs and Reforms, Paris: OECD, 2001.
reforms in public social security systems and private pension plans
partially replace defined benefit plans with funded defined contribution
plans, the demand for annuities is likely to grow in many countries.
Do annuities markets exist, how do they operate, and what kinds of
market failure can be anticipated? This paper analyzes the moneys
worth ratio (MWR) provided by annuities markets in voluntary and quasi-mandatory
systems in 8 countries. We ask: what is the expected discounted value
of payouts relative to premiums, how do insurance companies cover
their costs, and why dont more consumers purchase annuities
in view of a seemingly high MWR?
- "Reforming Social Security in the U.S.: An International Perspective" in Business Economics, 2001.
20 countries around the world have now reformed their social security
systems, to include a funded defined contribution componentlike
individual accounts that are being contemplated in the US. What are
the different ways that these countries have implemented private fund
management and other aspects of individual account systems? What can
the US learn from their experience?
- "Administrative costs and the organization of individual account systems: a comparative perspective" in New
Ideas About Old Age Security, ed. R. Holzmann and J. Stiglitz, Washington
DC: World Bank, 2001 (co-authors J. Smalhout, D. Vittas); revised version
published in Private Pensions Systems: Administrative Costs and Reforms,
Paris: OECD, 2001.
paper investigates the cost-effectiveness of two alternative methods
for constructing individual accounts that are part of a mandatory
social security system: 1) investing through the retail market with
relatively open choice, which is the method first used by Chile and
adopted by most Latin American countries and 2) investing through
the institutional market with constrained choice among investment
companies, as attempted by Bolivia, Sweden and the Thrift Savings
Plan for federal retirees in the US. Our questions: what is the most
cost-effective way to organize IAs that are part of a mandatory
social security system? How low will these efficient costs be?
- "The political economy of structural pension reform" in New Ideas About
Old Age Security, ed. R. Holzmann and J. Stiglitz, Washington DC:
World Bank, 2001 (co-author S. Brooks)
have political and economic forces influenced the probability of structural
reform to social security systems, in particular reforms that add
a pre-funded pillar? How have these factors influenced the nature
of reform, especially its public-private mix? How have reforming countries
overcome resistance from powerful interest groups? We answer the first
two questions through quantitative analysis and the third question
through qualitative case studies of a smaller number of reforming
countries in Latin America and the transition economies.
- "Mutual funds and institutional investments: what is the most efficient way to set up individual accounts in a social security system?" in Administrative Costs and Social
Security Privatization, ed. J. Shoven, University of Chicago Press,
2000; also available as NBER Working Paper No. 7049 and World Bank Policy
Research Working paper No. 2099, 1999 (co-authors G. Ferrier, J. Smalhout,
is the most cost-effective way to organize a mandatory individual
account (IA) system? How does the cost of an efficient IA system compare
with that of a single centralized fund? These questions are analyzed
using data from Chilean AFPs and from mutual funds and institutional
investors in the US. Sources of variation in record-keeping and communication
costs in mutual funds are explored. What steps can be taken to keep
IA costs lowand how large will they be if these cost-saving
measures are adopted?
- "Coverage under old age security programs and protection for the uninsured – what are the issues?"
in Shielding the Poor, ed. N. Lustig, IDB and Brooking Institution
many developing countries the majority of workers do not participate
in formal social security schemes. Why, and is this good or bad? At
what rate should (and can) countries expand coverage? Is more coverage
always better? What steps can be taken to keep people who are not
in contributory pension schcmes out of poverty when they are old?
- "New systems for old age security: experiments, evidence and unanswered questions"
in World Bank Research Observer, Vol. 13, No. 2, August 1998;
reprinted in Fighting Poverty: Caring for Children, Parents and the
Elderly, ed. S. Ringen and P. de Jong, ISSA, Ashgate, UK & US.
now many countries have adopted structural reforms to their social
security systems. The new systems include a publicly managed tax-financed
social safety net together with a privately managed funded component
that handles workers mandatory retirement savings. What commonalities
and differences have emerged among reforming countries? How have transition
costs been covered? What old problems have been solved and what new
problems have emerged?
Working papers, testimony and notes
"The Impact of Chile's Pension System on Work Propensities of Men and Women: Evidence from a Retrospective Data Set." Draft ms (co-author Alejandra Cox Edwards).
"Mandatory Disability Insurance Systems: What are the Issues, What are Countries doing and How Can they do Better?" prepared for the World Bank. 2011.
"Work Disincentives for Women in Old Age Security Systems and How to Ameliorate Them" World Bank Discussion Paper, 2010
"Rethinking Survivor Benefits." World Bank Social Protection Discussion Paper 0928, 2010.
"Chile's New Pension Reforms." NCPA Policy Report No. 32, 2010.
"Pension Reform in Chile: Closing the Gap, not Scrapping the System."
NCPA Brief Analysis No. 583. March, 2007
A short note on recent changes in Chile's social security system
"Crowd-out, Adverse Selection and Information in Annuity Markets: Evidence from a New Retrospective Data Set in Chile"
Revised version of MRRC Working Paper 2006-147, 2006
(co-author Alejandra Cox Edwards)
This paper examines retirees' choices during the payout stage in Chile, the only country that has had mandatory defined
contribution accounts long enough to have substantial experience with payouts. We use probit analysis of a new retrospective data set of system affiliates. We expect that:
1) Retirees are less likely to annuitize if their accumulation finances a small pension in the vicinity of the minimum pension guarantee. In that case, publicly-financed
longevity insurance crowds out private annuity insurance. 2) Among retirees with larger pensions, those with health problems are less likely to annuitize (a classic source
of adverse selection). 3) Knowledge about the system will increase recognition of the value of annuitization and therefore the propensity to annuitize. Our results are
consistent with these hypotheses. Small pension size and bad health that induces early retirement are strong predictors of non-annuitization. Workers and retirees score poorly
on simple factual questions about the system, but knowledge is highest among annuitants.
- Testimony to Ways and Means Committee
- "The Lessons from 30 Countries"
(NCPA Policy report No. 277, June 2005)
- Testimony to Ways and Means Committee
- Hill Briefing
- "The Truth About Chile"
(Outlook section, Washington Post, Feb. 13, 2005)
- "Why personal accounts and why now?"
(co-author Deborah James, 2005)
A short note on the current US scene.
- "Reforming Social Security: What can Indonesia learn From Other Countries"
prepared for USAID conference, June 2004.
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