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Economic History | Growth and Development | Labor Economics


Louis Johnston


Chile has been called the “promised land” of Latin America, a First World country, and an economic miracle. Privatizing social security in Chile has often been hailed by economists as the key for their unprecedented economic growth and success within the past few decades—so much so that other countries have adopted similar pension models within their own countries. Somewhere along this path of astonishing economic growth, Chile, like other developed nations, has arrived at a point where it can no longer assume that the typical worker is a man. Yet as the gap continues to decrease between female and male labor force participation, the gap between female and male retirees remains ever present. In other words, the typical retiree is still a man. Because the calculation of retirement benefits is based on the idea of individual insurance, the uncontrollable economic, cultural, and demographic characteristics that shape the present reality of the Chilean woman are also shaping her future. Chile’s transition from a pay-as-you-go system to a system of individual accounts was economically sound and macroeconomically successful, yet I argue that it wasn’t pareto optimal, as the variable of gender was lost in the calculation of transition costs. Through constructing the economic profile of the average female Chilean worker—observing female wages, fertility, life expectancy, education, and retirement age—this study aims to replicate and demonstrate the gender pension differential that has existed under the privatized model of retirement in Chile since 1981 by means of simulation. Additionally, the results of this study of Chile’s past and present will bridge significant discussion into Chile’s future. Hypothetically having the ear of the Chilean Constitutional Congress, my research will foster suggestions for system design and policy changes, such as an increase in the female retirement age or expanding the benefits of maternity leave and childcare that could significantly improve the position of the average Chilean female retiree under a system of privatized retirement. This study is structured as follows; Section I provides relevant historical background on Chile’s systems of retirement, Section II is the literature review, Section III details the theoretical framework, Section IV explicates the empirical framework and analysis, Section V describes the data and summary statistics, and Section VI concludes with the results and discussion.