Can a Small Social Pension Promote Labor Force Participation? Evidence from the Colombia Mayor Program

• Published in: Economía (Washington, D.C.) Vol. 20; no. 1; pp. 111 - 154
• Main Authors: PFUTZE, TOBIAS, RODRÍGUEZ-CASTELÁN, CARLOS
• Format: Journal Article
• Language: English
• Published: Washington Brookings Institution Press 01.10.2019; The Brookings Institution
• Subjects: Age; Beneficiaries; Economic activity; Economic models; Households; Labor force; Labor force participation; Labor market; Labor supply; Males; Occupations; Older people; Panel data; Pension plans; Brazil; Colombia; Mexico; Chile; United States > US; Latin America
• ISSN: 1529-7470; 1533-6239; 1533-6239
• DOI: 10.1353/eco.2019.0010

One of the primary motivations behind the establishment of noncontributory pension programs is to allow beneficiaries to retire from the labor force. Yet their aggregate effects may be more complex. One such program, Colombia Mayor, stands out for its low eligibility age. Given that beneficiaries are not required to leave the labor force, it practically constitutes a fixed income—an unconditional cash transfer of sorts—to a still economically active population. Using panel data and instrumental variable techniques, this paper shows that the effect of this program has been to raise the labor force participation of relatively younger, particularly male, beneficiaries. This increase occurred precisely in the occupations with characteristics that are likely to require some up-front investment and for the comparatively poorer. We conclude that the transfer effectively loosened the liquidity constraints to remaining in these occupations. No such effect is found for older beneficiaries.