e-mail: laeticia@nepo.unicamp.br Bernardo L. Queiroz Department of - - PDF document

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TRENDS IN HEALTH AND RETIREMENT IN LATIN AMERICA: ARE THE ELDERLY HEALTHY ENOUGH TO EXTEND THEIR WORKING LIVES? Laetícia R. de Souza Population Studies Center “Elza Berquó” – University of Campinas e-mail: laeticia@nepo.unicamp.br Bernardo L. Queiroz Department of Demography – Universidade Federal de Minas Gerais e-mail: lanza@cedeplar.ufmg.br Vegard Skirbekk Norway Institute of Public Health and Columbia Aging Center, Columbia University e-mail: mailto:Vegard.Skirbekk@fhi.no As national populations age, a central policy recommendation for many years have been to raise labor force participation among older individuals, thereby mitigating some of the effects of population aging on public expenditures. However, in spite of intentions, life expectancy increase in many ageing economies has in recent decades been accompanied by a decline in the labor force participation of older workers. Reforms intended to raise retirement ages in ageing economies could potentially be challenged by age-related declines in health of those subject to the reforms. As Latin America experiences substantial ageing following rapid decreases in both mortality and fertility rates, in this paper we investigate labor force participation, retirement patterns and health conditions of those aged 50 years and above in Latin America from 1970 to 2010 based on census data from IPUMS. We focus on three health indicators: mortality risks, the

• verall disease burden and disability rates. Our results reveal, for instance, older men aged 60 to

64 have very similar health patterns compared those aged 55 to 59, but very different patterns of labor force participation. The results indicate that the same health status translates into lower labor force participation today than in the past. Our results indicate a potential to raise retirement ages for an extended working life period, given improvements in health over recent decades. Keywords: Latin America, labor force, retirement, older adults, health JEL: J1, J2, J14, J21, J26

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1 Introduction Raising retirement ages to maintain economic prosperity and fiscal sustainability is a central political aim in nations undergoing demographic change. We study labour force participation and health trends in several Latin America countries over the last half a century. Understanding retirement patterns is of central importance in order to understand changes and prospects in the

• verall retirement age. Latin America’s has experienced rapid industrialization along with

declining importance of agriculture and primary industries and reductions in employment among the self-employed (Saad, 2011). Ongoing demographic ageing and decreases in retirement ages is causing strain in social security systems in different parts of the world (Bongaarts, 2004). Legislation proposals intended to raise sustainability of social security systems in the wake of demographic change have taken central stage in public policy debates in recent years (Wise, 2004; Bloom and McKinnon, 2010; Hurd and Rohwedder, 2011). Whether one reforms public welfare systems to cope with ageing population structures is key for sustaining public pension systems (Bloom and McNikkon, 2010; Mason, Lee and Lee, 2010). Demographic changes, especially population ageing, will likely influence fiscal balances, sustainability of national health programs and social security systems (Mason, Lee and Lee, 2010, Bloom and McNikkon, 2010). Development in older adults’ labour force participation is central in determining the magnitude of the costs related to ageing (Gruber and Wise, 1999; 2004; Wise, 2010). Studies have revealed a great deal about labour force behaviour and drivers

• f retirement patterns in developed countries (Coile, 2015; Costa, 1998; Burtless and Quinn,

2001; Hurd and Rohwedder, 2011; Gruber and Wise, 1999; Wise, 2004, Bloom et al. 2009), however, relatively little is known about retirement and health in emerging economies, such as in Latin America (de Carvalho-Filho, 2008; Cotlear, 2011; Finlay and Fink, 2011). Labour force participation decisions among older individuals are strongly affected by the coverage, availability and generosity of public pension systems, which determine whether workers are able to leave paid work and influence the timing and magnitude of labour market exits (Coile, 2015; Hurd and Rohwedder, 2011; Gruber and Wise, 1999; 2004). Profeta (2002) highlights how social security policies and incentives impact on continued work at later ages.

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Income potential at later ages and whether older individual are offered what they perceive to be sufficiently high wage offers for continuing employment are also a important dimension of retirement decisions (Coile, 2015; Costa, 1998). Health is a further central dimension of employment potential at older ages. Perez et al. (2006) showed that Brazilians in poor health conditions are less likely to participate in the labour force and when they do, the number of weekly working hours tend to be lower. In recent years, health levels have improved among Latin Americans in their 50s, 60s and 70s - the disease burden among individuals has decreased in countries across the world in recent decades (Murray et al., 2015; UNPD, 2017)1. At the same time, most occupations have become less physically demanding (Goos & Manning, 2007; Gordo & Skirbekk, 2013). Better health and less physically demanding job tasks could potentially increase older individuals’ potential to work in a range of occupations. At the same time, pension levels and pension coverage have increased in many countries, which have made retirement a viable opportunity for a greater proportion of the population (Oecd, 2006, 2012; Queisser & Whitehouse, 2006). Further, productivity variation will also have strong effects on labour market outcomes (Skirbekk, 2008, Ichino et al., 2016). 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 labour market earlier (Queiroz, 2017; Queiroz and de Souza, 2017; Aguila, 2014). However, in general, there are very few studies on the labor supply of older individuals in Latin America and mostly are studies for specific countries (Aguila, 2014; Contreras, de Mello, and Puentes, 2016; Mesa-Lago and Bertranou, 2016; Nava-Bolaños and Ham-Chande, 2014; Queiroz, 2008; 2017). The impact of population aging on public pension programs is affected by the patterns of labor force participation among the elderly. As mortality declines and life expectancy and health conditions improve, one may expect that individuals would stay longer in the labor market, thus

1 It is important to stress that although while life expectancy has risen, cognitive performance has increased

(Skirbekk et al., 2013), yet other health indicators show a retrogress trend. For instance, there is an increasing

• verweight and obesity prevalence in Latin American countries, especially among women and children (Kain et al.,

2003; FAO and PAHO, 2017). In this paper, we only use health measures for mortality and disabilities. As we are mainly analyzing older male’s indicators, we believe this feature is not a concern at this point.

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reducing the fiscal impacts of population aging on public pension programs. However, historically there has been a long-term trend decline in the labor force participation of older workers (Costa, 1998; Burtless and Quinn, 2001; Gruber and Wise, 1999; 2004). Contrary to the past, most workers today enjoy a long and healthy period of retirement. These changes are a paradox since at the same time people are entering the labor force later, because of increasing educational attainment, living longer; they are leaving the labor force at younger ages (Wise, 2010). In Brazil, for example, Queiroz and Ferreira (2016) estimated that retirement duration will double from 1980 to 2025 (rising from 5 to 10 years - representing 20% of life expectancy at age 20, for males). There is a large body of research on how health status affects the labor supply of the elderly (Perez et al, 2006; McGarry, 2004; 2009; Hagan et al., 2009). In general, these studies relate health status to one’s decision to remain or leave the labor force from a micro perspective. Most

• f the analysis mentioned before is based on one point in time and tries to estimate individual’s

probabilities of working/retirement. There is less research work with a historical or a macro

• perspective. Milligan and Wise (2011) showed that, over time, health conditions in different

countries are improving as labor force participation of the elderly declines. In the same vein, Cutler et al. (2013) estimate that elderly labor supply could be substantially higher (15 percentage points) between ages 60 and 65 given current estimates of health status in the USA. The issue of the relation between health and labor supply, however, should be tested in a less developed economy, especially one going over important changes in the population age structure. 2 Background 2.1 Overview of Public Pension Systems in Latin America The characteristics of the public pension programs Latin America might impact on individual behavior as well as on the fiscal budget of the federal government. However, the main feature of the public pension programs in Latin America is the low coverage - % of older men receiving benefits – of the system. Melguizo, Bosch and Pages-Serra (2017) estimated that the retirement

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programs in the region cover only 40% of older individuals, but there is a large variation across countries in the region. Around 2010, countries such as Argentina, Brazil, Chile, Uruguay and Costa Rica had coverage ratios above 80% (Melguizo, Bosch and Pages-Serra, 2017) whereas in Guatemala and Honduras less than 10% of older adults were covered by any type of pension

• program. Queiroz (2017) shows that, on average, less than 50% of workers contribute to the

system in the 2000s, despite a significant increase in contribution rates from 1990 to 2010. Most of public pension programs in Latin America follow a pay-as-you-go system. Noted exceptions are Chile – where the system is based on mandatory individual accounts – and Colombia that gives beneficiary the option to choose between social insurance or individual

• account. All countries set minimum retirement ages to receive pension benefits. Overall,

retirement ages are higher for males (65) than for females (65), but it is also possible to collect benefits proving a number of years of contribution (Brazil). The minimum number of years of years to be eligible to receive a pension benefit varies from 15 in Guatemala to 38 years in Costa

• Rica. Pallares-Millares, Romero and Whitehouse (2012) and Rofman and Carranza (2005)

provide a more detailed description of the main features of each country in the region. Melguizo, Bosch and Pages-Serra (2017) argued that low contribution rates in Latin America are a feature of the labor market. As mentioned before, pension benefits rules in the region are very similar to what is observed in other countries; such as pension benefits are related to contribution by wage earners during their working lives. In general, access and rules to non-wage earners were complicated or non-existent further reducing contribution coverage. The empirical evidence suggests that labor regulations, high labor costs, lower productivity and weak institutional settings are the main reasons to explain high informality and low contribution coverage (Meghir, Narita and Robin, 2015; Almeida and Carneiro, 2012). Compared to OECD and other more developed economies, public pension programs contribution and coverage rates are very low in most Latin America. Access to retirement programs are, for most of the region, limited to very few socioeconomic groups (Rofman and Carranza, 2005). However, trends in labor force participation and withdrawal from the labor force follow very close what was observed in more developed economies with more mature pension programs.

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Thus, demanding more studies to understand the motivations behind retirement in the region as well (Queiroz, 2017). 2.2 Literature on ageing and work potential Several studies in the United States and Europe investigate the impact of pension regulations, incentives for continued work or early retirement on labor force participation and employment levels among older adults (Gruber and Wise, 1999; Wise, 2010). Hurd (1990) finds that labour force exit patterns are sensitive to regulations and that the peak of retirement falls to age 62 after the introduction of early retirement provisions in the 1960s for the U.S. In an international comparative perspective, Gruber and Wise (1999; 2004) showed, for a series of developed countries, that there are very large incentives to leave the workforce early and collect pension

• benefits. Also Borsch-Supan (2000) in an analysis of Germany and other OECD countries, finds

that public pension programs have historically created strong disincentives for work at older

• ages. Baker, Gruber and Milligan (2003) find that the Canadian pension program are effective in

influencing retirement ages, and that public policy create incentives for workers to stay in the labor force. Profeta (2002) shows that changes in the population age structure are among the main determinants of the size of the public pension programs in OECD countries – and that, as population grows older there are increased political pressure to maintain or create better conditions for early retirement. They also show that countries could create incentives for additional years of work by creating fair compensations for an additional year of work compared to the current laws in place. Yet, retirement decisions are not always based on monetary reasons - a study by Krueger and Pischke (1992) find little empirical evidence of changes in wealth on retirement behavior of older workers and no evidence that reductions in Social Security benefits slow down the trend to earlier retirement in the US. In the most recent phase of the international project “Social Securiy and Retirement around the World”, authors from different countries study whether older individuals are healthy enough to work longer years (Coile, Milligan, Wise, 2016). In the project, they used two methods, the same

• ne we use in this paper and a regression model developed by Cutler and colleagues (Cutler,

et.al, 2013). Using mortality as a proxy for the health condition of the population, the authors estimated a 28% additional working capacity for American males aged 55 to 69 years in 2010

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compared to 1977. This would indicate that individuals could work additional 8 years given their health status. This research goes in line with research developed by Skirbekk and colleagues (2012) who argue that the countries that have invested more in health and functioning are in recent periods functionally younger than other nations, regardless of actual age structure. If in the developed countries, research has shown an increase in labour force participation at older ages in more recent periods (Coile, Miligan, Wise, 2016), less developed economies are observing a rapid decline in those rates (Queiroz, 2017). The research on the impacts of public pension system on labor market behavior in Latin America is still incipient and focusing on country specific studies (Aguila, 2014; Contreras, de Mello, and Puentes, 2016; Mesa-Lago and Bertranou, 2016; Nava-Bolaños and Ham-Chande, 2014; Queiroz, 2008). Most of the current research concentrates on the impacts of population changes and fiscal impacts of the program to the economy. These studies analyze the idiosyncrasies of the pension system and its impacts on the society. Most studies focus on the fiscal impacts of social security regulations and redistributive issues, including which socioeconomic groups benefits more from the program). In recent years, there are important analyses on the impacts of the pension programs on older adults’ labor supply decisions. For instance, Leme and Málaga (2001) study the impacts of social security rules on investments in human capital and duration of labor force participation in comparison with a capitalization regime. They find that the pension scheme does not induce further investments in human capital due to the provision of pension benefits at fairly young ages. Carvalho-Filho (2008) shows that the social security reform of 1988 impacted the labor supply of rural workers. The author finds that rural workers leave the labor force as soon as pension benefits become available. Melguizo, Bosch, and Pages-Serra (2017) show the relation between weak labor market institutions and the coverage of public pension programs in the region. Aguila (2014) shows that current regulation of the pension program in Mexico explaian most of the decline in labor force participation among older adults. Finally, Queiroz (2017) in lower income Latin American countries, most men remained in the labor force until age 65 or beyond and that with economic development and related changes, the labor force participation of older men, even those aged 55–59, starts to decline.

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3 Data and Methods We use census data from a series of Latin America countries (Box 1) to study historical trends in labor force participation rates. The data are publicly available at the Integrated Public Use Microdata Sample (IPUMS) – University of Minnesota – at www.international.ipums.org. IPUMS-International is a collection of publicly available individual-level census data. The data are samples from population censuses from around the world taken since 1960. One of the main advantages of IPUMS is that they harmonized information across countries and time making it possible to perform a cross-country and overtime analysis of the labor market. The IPUMS dataset is based on enumeration files collected by the national statistics offices. The available data allows aggregation at the household, state and region levels. IPUMS uses United Nations (UN) and International Labor Organization (ILO) labor force definition to maintain consistency across time and countries, however they caution that small differences exist, which can affect the analysis of the results. The variable we used to produce most of the estimates is Employment Status – labor force participation. This variable indicates whether the respondent was part of the labor force – working or seeking work – over a specified

• period. The reference period for the employment status question varies across censuses. For most

samples, employment status was reported with respect to the day of the census or within a specified week prior to the census. In the samples used in the paper, the period of reference is the week of reference, normally the week prior to the census (MPC, 2015).

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Box 1 – List of Countries and censuses data, Latin America, 1970s to 2010s

Countries Years

Argentina 1970, 1980, 1991, 2001, 2010 Bolivia 1976, 1992, 2001 Brazil 1970, 1980, 1991, 2000, 2010 Chile 1972, 1982, 1992, 2002 Colombia 1973, 1985, 1993, 2005 Costa Rica 1973, 1984, 2000, 2011 Dominican Republic 1970, 1981, 2002, 2010 Ecuador 1974, 1982, 1990, 2000, 2010 Haiti 1971, 1982, 2003 Mexico 1970, 1990, 1995, 2000, 2010 Panama 1970, 1980, 1990, 2000, 2010 Paraguay 1972, 1982, 1992, 2002 Uruguay 1975, 1985, 1996, 2006, 2011 Venezuela 1971, 1981, 1990, 2001

Source: IPUMS International (2016)

3.1 Labor Force Participation Rates We define labor force participation rates as by the ILO for the proportion of the population of some specific age; normally the population aged 16 to 65 years, who is either working or actively seeking employment to the total population in the same age group. We analyze labor force participation rates instead of employment rates because we are mainly interested in variations on individuals’ labor supply decisions overtime regardless of the fact that they were in fact employed or not in the labor market. In general, most countries included in this study use the ILO definition or some small variation. We argue that using census data it is possible to construct a consistent series of labor force participation over time in Latin America. Costa (1998) and Gruber and Wise (1999) used similar approach to study the evolution of retirement in the United States and trends in retirement across developed economies.

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3.2 Mortality Rates (UN estimates) In order to perform our study, we followed the methodology developed by Milligan and Wise (2015) and used in a large comparative research project reviewed by Coile, et al. (2016). They proposed using mortality risks as proxy to health status. Their hypothesis is that a decline in the force of mortality is similar to an improvement in health conditions and this would be related to a better capacity to remain in the labor force. We obtained mortality data from the United Nations Population Division life-tables estimated from 1950 to 2015. The data are available in 5-year age group. We use standard demographic methods (osculatory interpolation) to transform the data into single year-age groups. In this study, we focused the labor force and health status of males. Female labor force participation is a very important matter, but its sharp increase in the last few decades makes it difficult to interpret the results for women. Using mortality rates, as a proxy for health status, has advantages and limitations. The main advantage of using mortality is that this information is available for a series of countries and over a long period of time. The main limitation is that mortality decline can happen as morbidity increases, and we will not be able to capture that. We perform additional analysis of health trends using data from the Global Burden of Diseases obtained from the Institute for Health Metrics and Evaluation (IHME) and disability rates obtained from census data. 3.3 Burden of Diseases (IHME) We use estimates from the Global Burden of Diseases (GBD) study to estimate changes in health conditions aiming at analyzing and comparing them with trends in labor force participation rates. Data is publicly available in the IHME website (www.healthdata.org). The GBD study uses several metrics to describe the burden of diseases: number of deaths and death rates, years of life lost due to premature death (YLL), years lived with disability (YLD) and disability-adjusted life-years (DALYs). YLL are obtained by multiplying the number of deaths in each age group by the maximum of life expectancy at that age. YLD are calculated by multiplying the prevalence of each sequela by its disability weight obtained on surveys of several

• populations. DALYs results from the arithmetic sum of YLLs and YLDs. Health life expectancy

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(HALE) intends to summarize overall population health, accounting for both length of life and levels of health loss at each age group. As the YLDs estimates are a measure of health status and therefore do not include a mortality component, we use this measure in our analysis. 3.4 Disability Rates (Census Microdata) We construct our measures of disability using census data for countries where it is available. From IPUMS data, it is possible to use a more general measure of disability built from the variable indicating whether the individual reported any disability (hear, seeing, walking) in the

• census. We also use a variable that indicates employment disability, which specifies if the

respondent was economically inactive because of disabilities. 4 Trends in Health Status and Labor Force Participation 4.1 Labor Force and Mortality Rates The trend in labor force participation for older male workers in Latin America shows significant changes in the last decades. Figure 1 shows labor force participation rates for males in the 1970s and 2000s. It is clear from the figure that labor supply declines rapidly with age and over time. Labor force participation rates of young individuals have declined mainly because of the increase in educational attainment. The estimates show significant changes in the last few decades, and it is clear that the length of working life has shortened over time. The rates have also declined for

• lder workers, especially because of early retirement trends, in most countries. For males, at age

50, about 90% of individuals are still in the labor market. The decline after age 50 varies a lot across countries. For example, by age 65 labor force ranges from 15% to over 60%. In some countries, rates are as low as observed in developed countries studied by Gruber and Wise (1999; 2004). There is a steep decline in labor force participation rates from 1970 to 1990 following the spread of public pension coverage - and more striking around age 65 between 1990 and 2010. In summary, there are two important points to be stressed. First, LFPR declines fast over time and with age, especially after age 60. Secondly, the decline is faster in recent years, coinciding with economic development, urbanization, changing in the economic occupations, and the emergence

• r growth of pension systems.

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Figure 1 – Labor Force Participation Rates, Males, Latin America, 1970s-2010s Figure 2 shows stylized fact about the evolution of mortality for the countries included in our

• study. The figure shows age specific mortality rates for individuals aged 65 at two different

points in time. We concentrate on mortality rates for males aged 65 because this is the normal retirement age in most of countries. We observe a steady decline in the probabilities of dying for all ages over time. The decline is faster for males above age 65. Assuming that mortality probabilities are a good proxy of health conditions, the steep decline in the force of mortality indicates clear improvements in the population health over time. In Latin America, the decline in mortality did not follow the historical course observed in developed countries. In little more than a half century most Latin American and the Caribbean countries experienced major changes in health conditions related to demographic, socioeconomic and environmental processes as a result of rapid industrialization and urbanization (Palloni, 1981; Palloni and Wyrick, 1981; Palloni, 1985; Palloni, Hill and Pinto-Aguirre, 1996; Palloni and Pinto-Aguirre, 2011). Although the rapid transition of mortality is an intrinsic feature of

50 100 50 100 50 100 50 100 50 60 70 80 50 60 70 80 50 60 70 80 50 60 70 80

Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador Haiti Mexico Panama Paraguay Uruguay Venezuela

1970s 2000s/2010s Activity rates (%) Men's age

Graphs by country

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Latin America, there are arguments for some diversity in the process causing some countries initiate the transition before others (Palloni and Pinto-Aguirre, 2011; Palloni and de Souza, 2013; Palloni, 1981). Only after 1950 began a widespread reduction in mortality in Latin America, thus reducing the gap with developed countries (Palloni, 1981; Gonzaga, Queiroz and Lima, 2017; Soares, 2007; Palloni and de Souza, 2013; Soares, 2007). Figure 2 – Age Specific Mortality Rates at age 65, Males, Latin America, 1970s and 2000s/2010s An additional way to look at improvements in mortality, and health status, is to observe at what age in a more recent year we observed a similar rate several decades ago. In other words, one could ask the question of “how old you should be to feel like a X years old in 1970s?”. Figure 3 shows the age equivalent mortality rates of a male aged 65 and 60 in 1970 to a more recent

• period. As in Figure 2, we find that mortality rates are declining fast in Latin America and

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especially at older ages. Based on mortality rates for the 1970s, we find similar mortality rates in the 2010s for individuals 5 or more years old. For instance, in the case of Brazil a man aged 71 years old in 2010 faces the same mortality rate as one aged 65 in 1970. The gap between those ages for all countries is over 4 years, for those who were 65 in 1970s, and 5 years for those aged

• 60. We find some deviations to this pattern, which are countries that faced serious social,

economic or political problems more recently (Haiti, Paraguay and Venezuela). It is important to emphasize that these countries have also experienced improvements in mortality rates although in a lower level. For example, in Haiti and Paraguay those who were 60 years old in 1970s shows mortality rates similar to the ones aged 63 in 2000s/2010s. Figure 3 – How old should you feel like at 60 (or 65) years of age in the 1970s? Males, Latin America, 1970s and 2000s/2010s Figure 4 concentrates on the relation between both labor force participation and health status measured by mortality rates. The idea is to understand how labor force varies based on the health status of the population. The figure shows the relation between labor force participation and mortality rates by age in the 1970s and 2000s/2010s (depending on the last year of data on labor

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force available for a specific country). The general result is that labor force participation rates today are much lower as the population health improves. Figure 4 – LFPR and Mortality Rates, Males, Latin America, 1970s and 2000s/2010s As an example, Figure 5 shows in more detail the relation between LFPR and mortality rates for

• Brazil. For instance, LFPR for men aged 55 was about 77% and mortality rate was 1.08% in
• 2000. Thirty years earlier, in 1970, a men aged 50 had similar mortality rate, while the mortality

for a men aged 55 was 1.6%. In 1970, LFPR for men aged 50 was over 90%. This means that, for males to be in the labor force in the 2000s they had to be in much better health than those in the labor force in the 1970s. Showing this feature in numbers, if men in 2000s experienced the same LFPR as the ones with the same mortality rate in 1970, LFPR of men aged 55 years old would have been 13 percentage points higher (90% against 77%). A different way to look at it is fixing the LFPR. The results indicate that at the LFPR of 40% mortality rates were about 2.5% in the 2000s compared to more than 6.9% in the 1970s.

50 100 50 100 50 100 50 100 .05 .1 .15 .2 .05 .1 .15 .2 .05 .1 .15 .2 .05 .1 .15 .2

Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador Haiti Mexico Panama Paraguay Uruguay Venezuela

1970s 2000s/2010s Activity rates (%) Mortality rates

Graphs by country

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Figure 5 – LFPR and Mortality Rates, Males, Brazil, 1970s and 2000s We also calculate the number of years of additional work capacity as proposed by Coile et al. (2016). This is obtained by adding up the additional work capacity at each age, which is the difference between the two lines represented in Figure 4. In Argentina and Uruguay, there were not many changes in the relation overtime. We find that additional years of working capacity in the most recent period would be smaller or almost the same than in the earlier years (-0.66). For In other countries we find positive results. For example, in the case of Brazil, we find that the total additional years of working capacity between the 1970s and the 2010s is 3.3 years, in Costa Rica additional 2.87 years and in Ecuardor an additional 1.5 year. The value is similar to what was estimated for the United States (4.2), Sweden (3.2) and the Netherlands (3.4). Some European countries with much faster changes in labor force participation (and mortality rates) have total additional years of work capacity of 8 years (France), 7.7 years (Italy) and 7 years (Spain).

10 20 30 40 50 60 70 80 90 Activity rates (%) .05 .1 .15 Mortality rates (%) 1970s 2000s

75 50 55 81 73 67 62 59

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The results indicate that for health reasons, most countries in our study could have higher labor force participation rates compared to the earlier period mortality levels. In general, we find that people in the 2000s and 2010s, work much less than their counterparts in the 1970s (with the exception of Argentina and Uruguay). This can be explained by the combination of two trends, first mortality rates decline rapidly since the 1970s in Latin America, especially for those aged 50 and above, but also labor force participation rates, for most countries, are much lower in the more recent than in the earlier periods. This initial analysis gives evidence that the decline trend in the labor force participation of elderly males in Latin America cannot be explained by health status alone. The results showed before indicated that as health status – measured by mortality rates – improves the labor force participation of older workers declines substantially. In other words, using this measure we find that there is significant capacity to work at older ages in most countries. And this is happening in a time of important changes in the physical demand of work and of improvements in the educational level of workers. Following the estimates by Queiroz and Ferreira (2016) for Brazil, most years of life which have been gained through mortality reductions are being spent in retirement rather than divided between work and retirement. 4.2 Labor Force and Burden of Diseases Figure 6 shows estimates of the number of Years Lived with Disability (YLDs) estimated under the Global Burden of Diseases Project. We compare estimates from 1990 and 2015 for adjacent population age-groups. We selected younger age groups in 1990 (45-49 and 60-64) and compared to the following age groups in 2015 (50-54 and 65-69). There is a wide variation across Latin America countries, but we observed that health conditions of the population aged 50-54 in 2015 are very similar to those aged 45-49 in 1990. This feature is smoother while comparing the older age group (60-64 in 1990 to 65-69 in 2015) as the curves are more distant which suggests improvements in health especially experienced by the younger cohorts. Also, if we compare the same age groups in both years, we verify that in this 25-year period, men aged 45-49 live virtually the same number of years with disabilities in 1990 and in 2015 although the LFPR was substantially higher in 1990. This behavior is also verified while comparing men aged 60-64 in 1990 with the ones in the same age group in 2015. YLDs give a better measure of the heath condition of the population in comparison to mortality rates. If one argues that declining

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mortality reduces the selection of those reaching older ages, one could expect to find elderly population in worse health condition that what we observed using the burden of diseases measure. Figure 6 – YLDs (Years Lived with Disability) - Older Males, Latin America, 1990 and 2015 Figure 7 concentrates on the relation between labor force participation and YLDs (Years Lived with Disability). The idea is to complement the analysis of labor force and mortality rates by using a better measure of health conditions. The figure shows the relation between labor force participation and YLDs by five-year age groups in 1990s and 2000s/2010s. Once again, the general result is that labor force participation rates today are lower as the health of the population improves over the decades, although this relation is weaker than the one we observed using mortality rates. At least for Bolivia, Colombia, Dominican Republic, Ecuador, El Salvador

7000 8000 9000 10000 11000 12000 13000 14000 15000 16000 17000 18000 19000 20000 21000 22000 23000 24000 25000 26000 27000

Y L D s ( r a t e ) 45-49 in 1990 50-54 in 2015 60-64 in 1990 65-69 in 2015

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(except for Argentina, and Panama), we clearly observed that men with better health conditions in the 2000s/2010s showed lower labor force participation rates than their counterparts in the

• 1990s. Only for Argentina and Panama, we observed a pattern where men with similar YLDs in

the 1990s present higher LFPR than the ones in the 2000s. These results allow us to draw conclusions similar to those based on our previous analysis of mortality rates as proxy for health status: the elderly in the last decades are healthier and despite this, work less than their counterparts in earlier decades. Figure 7 – LFPR and YLDs Rates, Males, Latin America, Selected countries, 1990s and 2000s/2010s 4.3 Labor Force and Employment Disability Rates We complement our analysis by using employment disability rates as a proxy for health status of the population. This information is available in census data. The question is available for fewer

20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 20 40 60 80 100 10000 15000 20000 25000 10000 15000 20000 25000 10000 15000 20000 25000 10000 15000 20000 25000

Argentina Bolivia Brazil Chile Colombia Dominican Republic Ecuador El Salvador Mexico Panama Paraguay Peru Uruguay Venezuela

1990s 2000s 2010s YLDs rates (%)

Graphs by country

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countries and more limited period of time. In addition, there is a wide variation on the quality of information, how it is asked and cultural factors that may affect how people respond to it. To make it clearer, employment disability variable is distinct from the general disability status variable, because it includes only responses that were reported in the context of the employment status question. In essence it is a subcategory of persons who were not in the labor force as it indicates whether the respondent was economically inactive because of disabilities or health- related reasons. According to MPC (2015), it can implicitly be interpreted as the reason the person was not working, although the census questions may not have been posed in precisely this

• way. Some countries/years refer to a disability as reason for not working while others include a

long term or temporary illness that has rendered the person unable to work. The employment disability variable might also be affect by public policies aimed at disable individuals in the

• population. Despite limitations, we argue that it is interesting to add this information since it

allows a cross-country comparison using additional information on health conditions of the population. Figure 8 shows the relation between labor force participation rates and employment disability

• rates. Although the relation between labor force and this health measure yields more erratic

curves, we could observe two features. First, we observed that employment disability rates declined over time for most of the countries analyzed (except for Chile). Also, keeping activity rates constant, we find a trend of declining employment disability rates for the same Latin American countries, which indicates that the reduction in employment disabilities has not been accompanied by any increase in labor force participation.

21

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Figure 8 – Labor Force Participation Rates and Employment Disability Rates, Latin America (selected countries), males, 1970-2010 5 Conclusions The rapid process of population aging will have huge impacts on the sustainability of public pension systems around the world, not least in Latin America. The increase in old age dependency ratios can result in larger number of beneficiaries having to depend on relatively fewer contributors. The demographic problem is not the sole issue in this matter. There has also been a strong downward trend in labor force participation at older ages for many countries. Early retirement has added to the challenge of population ageing by further reducing the retiree-worker

• ratio. Labor force participation rates of older men fell significantly between the 1950s and 2010s

for the Latin American countries we study. The trend towards earlier retirement may be explained by income growth and greater and more generous pension coverage. Another potential reason could be poor health conditions. In this paper, we aimed to investigate this relation for a series of countries in Latin America with different levels of public pension coverage.

20 40 60 80 100 20 40 60 80 100 20 40 60 20 40 60 20 40 60

Brazil Chile Colombia Ecuador Mexico Venezuela

1970s 1980s 1990s 2000s 2010s Employment disability rates (%)

Graphs by country

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First, we show that there is a clear improvement in the health condition of the population in Latin American countries. Using mortality rates as a proxy of health status, we show that in many countries (such as Brazil, Bolivia, Chile, Costa Rica, among others) a man aged 71 years in the 2000s/2010s face the same mortality risks as a 65-years-old-man in the 1970s. The results indicate that at the same mortality level labor force participation of the elderly was much higher in the past than it is today. Second, we observe a steady decline in labor force participation rates

• ver age and over time. We also looked at other measures of health status, although it is not

possible to perform a long-term analysis due to data limitations. The results indicated that males aged 60-65 have very similar health status as males aged 55-60 and have only modestly worse health than those aged 50-55. This indicates that a large part of those not working beyond age 60 cannot be explained by their health status. The results indicate that – for health reasons – an average older adult male could remain in the labor force for a longer period than they are staying. However, there are a few caveats to this

• result. First, it is important to use other measures of health status to perform this analysis,

especially in a longitudinal perspective. An analysis of the relation between trends in morbidity and in the labor force participation is part of our next steps. Second, it is important to stress that there is significant variation in health status across socioeconomic groups – which is the case of Brazil, for example (Perez, 2010) – and this should be also taken into account in future analysis. In this context, policies that increase retirement requisites or increase incentives for longer working lives will not impact all population sub-groups in similar ways. In any event, the results indicate a significant potential for labor force participation and employment beyond age 60 and this could be even stronger for future cohorts. In general, the directions of the results are very similar to what was observed for OECD countries (Coile et al, 2016). The reduction in mortality, and improvement in health conditions, was not accompanied by increases in labor supply or an stagnation in the decline of the older adults labor force participation. For most of Latin American countries in this study, we find that labor force participation is lower at any mortality rate compared to 30 years before. However, the decline in the region is still much smaller than in more developed economies. Coile et al (2016) find that, on average, workers in 2010 could work additional 5.5 years based on the relation mortality labor force from 1970s. In Latin America, average is much smaller than that. But, we

24

should stress that mortality levels in Latin America are higher – indicating worst health conditions – and the public pension programs have relatively low coverage. We observed that (paid) retirement, which was until recently not practiced, has transformed into an important part of the life cycle in Latin America. Yet, there are widespread differences across countries and the percentage of the elderly in the labor force in the region is higher than in more developed economies. The rapid process of population aging will have large impacts on the public support system in Latin America. The increase in old-age dependency ratio means that a larger number of potential beneficiaries will depend on a smaller number of workers. The results also indicate that as economies developed and pension systems become universal and more generous the labor force participation at older ages tend to decline more rapidly. The combination of population aging and early withdrawal from the workforce could increase old- age dependency ratio more than what would be predicted by demographic analysis. In Latin America, especially in the less developed regions, most persons remain in the labor market until very old ages. In the more developed economies, countries with older population age structures, and where old-age support systems are already in place, labor force participation

• f older workers decline with age and over time. One of the clearest relationships affecting the

labor supply of older workers is increase in per capita income and coverage of old-age support

• programs. We should stress, however, that these relationships are complex and more analysis are

necessary to better understand the labor market participation of older males. The importance of old-age support systems throughout the world is unquestionable, and the well- being of the elderly depends heavily on the provision of income from such programs. However, the necessity to adjust such programs to be robust in the face of population aging is clear and

• fundamental. One of the main questions in this discussion is whether the population is healthy

enough to be able to adjust to such a reform. This study suggests that health is generally not a barrier for raising retirement ages and making social security systems sustainable also in the longer term.

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