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Public pensions, economic development, and the labor force participation of older adults in Latin America in 1990–2010

However, very little is known about the elderly labor force behavior in emerging
economies, such as in Latin America (de Carvalho-Filho, 2008; Cotler, 2010; Finlay
and Fink, 2011). Economics literature predicts that rising income, socioeconomic
changes, and the emergency of public pension systems play a key role in affecting the
number of the elderly that remain in the labor market (Clark and Anker, 1990; 1993;
Clark, Young, and Anker, 1999). The study of retirement decisions in a developing
country could contribute to better understanding the causes of the decline in older age
labor force participation and the impacts of social security systems on these changes.
It is argued that the income effects on labor force participation might be larger in low-
income countries, and that the structure of the labor market, high information ratio,
and the lower capital-worker ratio might affect labor market decisions differently from
what is observed in industrialized countries (de Carvalho-Filho, 2008; Kaushal, 2014).
In addition, workers in developing countries have shorter life expectancies and face
more credit constraints, which can lead them to having a myopic behavior regarding
social security provisions (de Carvalho-Filho, 2008; Kaushal, 2014).
Latin America is one example of an important context for elaborating linkages
between economic development, pension benefits provision, and labor force
participation of older adults (Melguizo, Bosch, and Pages-Serra, 2017; de Carvalho-
Filho, 2008; Cotlear, 2011). The rapidly aging population presents one of the greatest
public policy challenges in Latin America, and raises concerns about living conditions,
social support, and health care provision for older adults, especially where family
support has been weakened by economic development and where a universal welfare
system is not yet in place. Latin America also consists of countries with relatively
matured and less matured public pension programs of the world (Melguizo, Bosch,
and Pages-Serra, 2017; Cotlear, 2011; Finlay and Fink, 2011). Furthermore, it is
generally argued that the pressure of youth unemployment might be reduced by
creating incentives for older adults to leave the labor force (Gruber and Wise, 2010).
In many Latin American countries, the high unemployment rate among the youth is a
social problem (He, 2017; Herranz, 2016; OECD, ECLAC, and CAF, 2016). Thus, the
region provides a good example to study labor force participation of older adults and
its associated macro factors. However, despite the growing interest in this area (Clark,
Young, and Anker, 1999; Bloom et al, 2009; Finlay and Fink, 2011), there are very
few studies that covered the whole region; instead, most previous studies focused on
the experiences in some particular countries (Aguila, 2014; Contreras, de Mello, and
Puentes, 2016; Mesa-Lago and Bertranou, 2016; Nava-Bolaños and Ham-Chande,
2014; Queiroz, 2008).
There has been a decrease in labor force participation of older persons in recent
decades in both developed countries and developing countries, including Latin
American countries (Aguila, 2014; Costa, 1998; Gruber and Wise, 1999; 2004;
Queiroz, 2008; Wise, 2010). In Latin America, the expansion of the social security
system, economic development, and rising income might have created incentives
for more workers to leave the labor market earlier (Aguila, 2014; Queiroz, 2008).
In addition, improvements in goods and services provided to older adults have
transformed retirement into a more pleasurable and desirable stage of life. By using
aggregated data from 23 Latin America countries (see Appendix), the present study
aims to investigate how labor force participation of older men in the period 1990–
2010 varied across Latin American countries that are in different stages of economic
development, as reflected by differences in national economic conditions, retirement
programs, and demographic structures.

1.1 Modeling Retirement Decisions
Labor economics textbooks highlight that retirement decisions depend on two factors:
workers’ wage and pension benefits (Coile, 2015; Ehrenber and Smith, 2016). The
simple model assumes that a worker has just turned to be 60 years old and has a
remaining life expectancy of 20 years. For simplicity, once retired, this worker does
not participate in the labor market again. The worker faces a budget constraint limiting

122 International Journal of Population Studies 2017, Volume 3, Issue 1