Gender, family status, and health characteristics: understanding retirement inequalities in the Chilean pension model Marcela Parada-Contzen* saitennium Nucleus (Intergenerational Mobily: From Modeling to Policy) and Departamento de Ingeniata Ir ane ae Ingentera, Universidad de Concepcion. Chile. -mat: mparadacontzen@gmai.com, | thank ine Industral Fact dai Prevsion of Chile for providing and authoring the use ofthe data | alo thank the funding by [ANID Mileniom Science inate Program - NCS2021 072. Abstract “This paper quantifies the impact of ife-cycle events on retrement wealth. Because ifetme ‘events impact through multiple channels, | estimate a set of correlated equations that capture labor market behavior, portfolio and savings decisions, risk preferences, family and health characteristics, using data from the iconic Chilean experiment, Results indicate that gender ineaualty due to marta status is responsible for 18 dollars of wealth diferences per married year, Impacts on wealth accumulation from childbearing range between 9 and 114 dolars per child per year. Health shocks have an Impact of 39 dollars per year on retirement wealth Keywords: retirement income policy, life-cycle savings, gender inequality, elderly poverty. JEL Classification: J26, D16, 198, C33. Accepted Article “This article has been accepted for publication and undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to tlifferences between this version and the Version of Record. Please cite this article as doi: Mile. 12365. LO.LL Wile “This article is prot ted by copyright. Al rights reserved: _Surplied by he Brien Library 05 Ju 2022, 08:00 (BST)1 Introduction “The International Labour Organization (ILO) proposes eight principles for pension systems (LO, 2018), These are i) universality (of the right to social secury), i) social soidanty and collective financing (.., redistribution effects and prevention of transferring financial and labor market risk to individuals), il) adequacy and predictabilty of benefits, iv) overall and primary responsibility of the state (in ensuring the financial, fiscal and economic sustainabiiy of the system), v) nondlscrimination, gender equality and responsive-ness to special needs, vi) financial, fiscal and economic sustainablity, vi) transparent financial management and ‘administration (to ensure compliance with regulatory frameworks), and vil) involvement of ‘social partners and consultations with other stakeholders." Retirement systems generally include all or some combination of the following pillars: 0) a universal or social pension, 1) a pillar based on occupational or public schemes, 2) a private individual contribution component associated with personal savings accounts, and 3) voluntary ‘complementary personal savings (ILO, 2018; Gilion, 2000)? Many countries have moved from pay as you go (PAYG) systems to models with private components to prevent fiscal insolvencies (McKlernan, 2021). This implementation has generally improved affordability, sustainability, and predictabilty; while raising concetns regarding its adequacy, equitabiliy, robustness, and social acceptance (Barr and Diamond, 2016; Mesa-Lago and Bertranou, 2016; ‘Arza, 2017; Madeira, 2021), Because features such as adequacy and equitabilty are relevant from a socioeconomic perspective, their consideration from a policy perspective has increased over time,? Empirical ‘evidence regarding factors that impact equitabilly and adequacy is generally related to individual working histories. Ife-cycle income levels, and gender differences in the labor market (Mohring, 2018; Fasang et al, 2013; Betto etal, 2013; Dewilde et al, 2012). However, it has been dificult to quantity the Impact of socioeconomic and gender in pension outcomes (Kuivalainen et al, 2020), This gap impacis the design of policies that seek to improve retirement income outcomes, “he Word Bank (WB) combines sx characteristic to reach welfare Improving outcomes (Wort Bank, 2008) 1) adequesy.) atordabhty.h)sustanabiy, W) etait, v) predictably, ané ) robustness, "2 Arar motes ne nn apy Wen, ZO) a eGo en (sian 500, or example, Kuivalsinen etal (2020), Beto eta. (2013), Freicks ang Mater (2007) and Horstmann eta. (2009) (ora delsied docuoson regarding policy design considering adequacy and equality in Ewope. Accepted Article This article is protected by copyright. All rights resorved. ‘Suoplid by the Brish Library 05 Ju 2022, 08.00 ST)Accepted Article Inthis context, this paper quantifies the effec of life-cycle events such as gender, family, and health characteristics on retirement wealth, With this information, one can design efficient programs that address poverty and inequality among retirees to improve welfare outcomes. Following the ILO and WB classification, | refer to these socal polies as zero-pilar schemes. For the analysis, | use the first four waves (2002-2000) of the Chilean Survey of Social Protection (EPS), a rich data set linked with administrative records of the Chilean ‘Superintendence of Pensions. ‘The Chilean pension model has served as a prototype for the design of other pension systems after its promotion by the WE in the 1990s (Orszag and Stiglitz, 2001).* However, ‘evidence shows that the Chilean system did not fulfil pension expectations (Lopez Garcia, 2018), itreproduces gender labor-market inequalities (Mesa-Lago and Bertranou, 2016), it may eave women in old-age poverty (Joubert and Todd, 2020), leave pension outcomes sensitive to unfavorable market retumns (Krasnokutskaya et al, 2018). prevent more active participation ofthe State (Buccil et a., 2020), and have accumulated important social discontent (Madeira, 2021)2 To quantity wealth effects, |e ecisions that directly impact wealth accum selection, reirement portfolio choice, and optional savings) based on an extension of Parada- ontzen (2020). | endogenously incorporate individual characteristics such as risk aversion, ‘expected ifespan, family characteristics (e.g, matttal status and the number of children), and health status. ale @ dynamic life-cycle model in which individuals make tion (e.g., employment status, occupation ‘The contribution of this paper is threefold. First, it contributes to the erature that studies the design of compensations to account for differences across gender and other characteristics in wealth accumulation. Second, because social pensions are generally discretionary and 7 Counties that have adopted some form of the Chilean mode: Argentina, Goliva, Colombia, Costa Ria, Dominican Repub £1 Salvador, Monice, Panama, Peru, Uruguay, Bulgaria, Hungary, and Poland (rae, 2008; Joubert, 2078) There Fea oe geht rotom proposals nthe Unted Siales ana Europe that consider features fom the Chilean pension ‘System (Joubert 2016; Krasnoxatskaya ela. 2078). ‘Sracent proasures nave lod to several forts, cluding restislon of savings 1 be used aa etapacabe income during the CoviD 1p pond, Tho 1901 reorm, Mowever is sil considered an example of {ansiion from PAYG to ratwauat {vont fr poli design purposes (Mekieman, 2621) ‘peteed tothe O's principles, the Chilean rode sctieves poor scores in) universality, regarding tigh fvels of iniormaty (doubert 2076; MeKernan, 2021, smal soca solar and collective financing ont trough general axes fi) ear eae ce vedirabiy of benetscroniy alacied afer resituon of sings, W) ovral and primary eponsibty of he ae eas ote hal affects savings Wve, v)nondiscrmination and equitably where labor market sks are faced by eee easel w teancial,facel and economic sustainably spodall after restton of savings, vi) good financial ee rt (ooh. a) ana) partcuay ater he socal ypheavalin 2019 and restiston of 2020) and vi soil dialogue Jem unde tne WB temawerk, he system falls o achive adequate amounts 1) affordable outcomes, especily ater sa ree 0202", 5) suseinably afer the foent socal upheaval 2019 and resttuon of savings, ) equtabilty term atibuien of incomes across income groups and genders, v) predictably air cession of savings, and vi) ‘busines fo withstand nancial shocks whore the yeary pensions of retrees depends on nancial movements * his paper focuses on queniying wealth accumiaton difrenoes due to famly and health characteristics. Pareda Ccontzan (2020) uses on eroucing aut acrose diferent sources of savings. “This article is protected by copyright, All rights reserved. ‘Supplied bythe Bris Library 05 su 2022 08:00 (8S)Accepted Article depend on other policy variables such as minimum wages (Bovenberg et al, 2012), this paper allows policy-makers to design policies considering tothe effects and distortions that they want to correct. The empirical analysis is based on the Chilean pension system, but the paper provides a general framework to quantity the wealth effects of if events in any pension system. ‘Third, | account for many sources of estimation biases, such as selection nto behaviors, endogeneity, and measurement error. Selection and endogeneity biases may occur because individual preferences over choice sets are unobserved (Gelber, 2011; Beshears and Chol, 2012) Measurement error may come from selfxeported variables measured with noise, & limitation in the literature (Kuivalainen et al, 2020). | use administrative records with the ‘complete history of retirement wealth accumulation, meaning that it does not depend on self= reported amounts, which are susceptibie to measurement error (Engelhardt and Kumar, 2007). | also use a flexible empirical approach that allows me to incorporate the nonlinearities of the individual's decision-making process without making any assumption about preferences and expectation processes, thus avoiding potential biases due to misspecification (Engethardt and Kumar, 2007; Card and Ransom, 2011). Additionally, to better narrow down the distribution of individual unobserved heterogeneity, | jointly estimate life-cycle behaviors with observed measures of risk aversion, following the recent but growing Iterature on life-cycle risk tolerance (Gahm, 2012; Schildberg-Horisch, 2018; Kettiowell, 2019). Finally, | do not rely on exogenous shocks for identification which avoids dependence on policy reforms or on settings that lack external validity and small sample sizes (Kuivalainen et al, 2020, Blau, 2016). ‘The next section presents some relevant literature, and Section 3 presents the empirical model . Section 4 presents the data and Section 5 estimation and simulation results. Finally, Section 6 concludes, "cis andepsted that risk-averse indicus elect safer occupations and choose safer ponies while consuing more “This article is protected hy copyright, All rights reserved. Supplied bythe British Library 05 2022, 08:00 (8ST)Accepted Article 2 Relevant literature Retirement benefits in systems that depend on working histories are dependent on lifecycle events. For example, having children may directly impact finances as well as consumption and savings behavior, and may indirectly impact the time that household members can work (Hubener etal, 2015). Women are a particularly vulnerable group (Vara, 2013; Zhao and Zhao, 2018; Feng et al, 2019: Joubert and Todd, 2020). They participate less in the labor market due to childbearing and other household work, work fewer hours, and eam less (Beto et al, 2013; Ponthieux and Meurs, 2018). While the gender weaith gap in pension outcomes tends to favor men In most countries, there is ile research to explain its 2¢ and sources (Austen et al, 2014). Previous evidence suggests that institutional factors play @ more important role in retirement wealth than gender differences (Femandez-Lopez et al, 2018). Evidence also shows that retirement systems reproduce labor market inequalities (Vara, 2018; Zhao and Zhao, 2018) and that diferences in ‘wealth portfolios and careers contribute to retirement income gender gaps (Austen etal, 2014; Feng et a., 2019). Diferences in wealth portfolios are partially due to differences in individuals! tisk aversion but also because of women’s position in the labor market (Kristjanpoller and Olson, 2015; Arano et al., 2010; Bermasek and Shui, 2001), Other lifecycle events that may impact retieement incomes are related to workers’ health status, Health shocks impact earnings, portfolio choices, expenses, consumption patterns, and savings behavior (Kim et al, 2017; Beshears et al, 2017; Bogan and Fertig, 2018). Income inequality arising from differences in health shocks has not been investigated in detail The way retirement systems cope with differences in incomes depends on their design ‘Some systems do not address heterogeneous labor histories, while others compensate unstable contributions (Kuivalainen et al, 2020). Some provide access to childcare and contribution credits for periods during which the individual is taking care of others, while others match the contributions of poorer individuals (Jefferson, 2009). Other systems follow oncontributory programs to prevent poverty. Generally, mult-plar pension schemes that guarantee a pension income have been recommended to account for incomplete contribution histories (Mohring, 2015). ‘This article fs protacted by copyright. Al rights reserved. Supled bythe Bris Library 05 4 2022, 08:00 (BST)Accepted Article Early evidence on gender gaps in the Chilean System Women may achieve lower pension outcomes due to: (1) low wages, (2) low coverage, (3) lower minimum retirement age, and higher lfe expectations with respect to men, Gender gaps, while an important issue in retirement outcomes, was under researched in the international literature until the 2000s (Bertranou, 2001). Indeed, it was not until 2001 thatthe ILO published Its gender equally principle for social security (ILO, 2001) Much ofthe first evaluation of the system considers its posive impact on macroeconomic ‘outcomes, including economic growth, productivity, savings and investment, and the labor market (Arellano, 1962; Valdes and Cifuentes Santander, 1990; Corsetti and Schmidt-Hebbel, 1997; Hachette etal, 1998; Edwards and Edwards, 2002; Corbo and Schmidt-Hebbel, 2003), together with Impacts on capital markets and analysis of private funds management market (Walker, 1991; Valdes, 1994; Valdes and Edwards, 1996; Glaessner and Valdes-Prieto, 1998). Evidence from the 1970s indicates no detectable differences in wage premiums between ‘men and women, showing similar impacts across gender per year of experience on wages {(Corbo, 1974). While there was evidence on gender diferences in coverage, studies tended to not consider different trajectories in eamings or wealth accumulation across genders (iglesias, ‘etal, 1988; Baeza and Simonetl, 1988; Wagner, 1991). However, some initial evidence shows that 65% of assistance pension recipients in 1987 were women, and by 1991, most of the projected cost of minimum pensions was attributable to women (Wagner, 1991; Diamond and Valdes, 1903). ‘The old PAYG system and the new system did not seek to include redistribution mechanisms between wealthier and less wealthy individuals, In both designs, the objective was to provide replacement income, computed as a function of historical eamings (Gaete et al., 41988). This was also discussed before the system was implemented (Foxley et al., 1977). Gillon and Bonilla (1992) argued that the new system was regressive, as solidarity across income groups did not exist, and the wealthiest were able to obtain greater benefits Regarding adequacy, Gillon and Bonilla (1992) showed an average replacement rate of 443% but suggested that increasing contribution rates of 18% or 20% would increase replacement rates of 68% and 89%, respectively. The idea of increasing social policies for reaching adequate levels of pension and improving redistribute outcomes was developed in detall by Diamond (1999), "Comme on tis study were lator provided by Bustos Casio (1999), “This article is protected by copyright. All rights reserved. ‘supplos bythe Bs Library 05 J 2022, 08:00 (BST)Accepted Article It was expected that women would have less pension income since they reach retirement age caller than men while having a longer life expectancy (Diamond and Valdes, 1999; CIEDESS, 41994), Some authors show that women should contribute more than 18%-20% of their wages to ‘obtain replacement rates of 44% (Gillon and Bonilla, 1992). Evidence showed that if women retire at age 65, they will need to finance a period of retirement 25% shorter than if they retire at ‘age 60 (Barrientos and Firinguett, 1995). Some authors also suggest using unisex-based tables rather than gender-based tables for achieving better equally levels (Elter and Briant, 1995b,a), \while others find that variable annulties would eliminate the use of gender-specific ables (Diaz ‘and Edwards, 1994). Evidence regarding coverage was mixed. Some authors argued that women's participation in the new retirement system wes marginally higher than men's participation, although the opposite was observed in developed countries (Barrientos, 1998). Other evidence showed small diferences in coverage across genders (Edwards and Edwards, 2002). A broader discussion with respect to gender gaps in Chile and other systems was provided in the mid-2000s (see, for example, Arenas de Mesa et al. (2006), James et al (2007), Dion (2007), 3 Empirical model 3.1. Institutional background Chile has a three-pilar pension system (social pillar, mandatory individual account, and Voluntary savings). The model was implemented in 1981 as one of the many liberalization reforms implemented during Pinochet's regime."® The reform was introduced in an ideological attempt to reduce the role of the public sector in economic affairs and to reduce fiscal expenses, under the slogans of freedom, justice, and progress (Edwards et al, 1998). It generated strong opposition in interested groups and a social discontent that has increased over time (Edwards et a, 1998; Madeira, 2024), The original model consisted of a social pillar and a mandatory individual account, In 2002, a reform introduced voluntary savings plans (Berstein etal, 2010), while the social pillar was expanded in 2008 (Attanasio et al., 2014; Joubert, 2018), “Oyo ditto nature of he goverment and ack of democratic processes a the tine, substantily helped the implementation ofthe new pension model (Mesa-Lago, 1996) “This article is protected by copytight. All rights reserved. Supliegby the Bish Library 05. 2022, 08:00 (BST)ccepted Article Pension income is dependent on accumulated life-cycle mandatory savings (from now on, retirement wealth) (pillar two). Depending on the position ofthe individual in the income and ‘wealth distribution, pensions also depend on public subsidies (pillar zero). The amount of social pensions is a function of the individual's and household retirement wealth (Superintendencia de Pensiones, 2021¢,2) Contributors are dependent workers who are forced to save 10% of their paychecks in an individual account. The original design considered that mandatory savings were only cashable upon retiement."* Savings are managed and capitalized by private firms known as Pension Fund Administrators, whose unique objective isto manage retirement savings and invest them in financial markets. By November 2021, the Pension Fund Administrators managed @ total amount equivalent to 62% of the GDP (Superintendencia de Pensiones, 2021b). The system forces enrollees to invest their savings in one (and up to two) of five available investment funds. In the model, the per-period alternatives concerning contribution rates, retirement portolio allocation, and optional savings are defined within the Chilean retirement system framework. Retirement wealth is denoted by Ay, Enrollees make five retirement porttolo choices corresponding to whether to Invest in each available retirement account. These accounts are labeled A, B, C, D, and E, and the only difference between them is their level of financial risk. Individuals’ portfolio choices are denoted by pc = (Pp: Pfaph. Pl). Financial returns used to update retirement wealth are based on historic information, considering the individual's portfolio choice from 2002-2009, and the system retuins before 2002 when only one option was available.” While individuals have five options for investing their savings, no other means of investments are considered in Chile's pension model (e.g, specific financial products, social or public investments). Individuals may also open a voluntary retirement account or savings outside the retirement system (pillar three). Optional savings are modeled as a dichotomous variable denoted sy. The alternatives for investing voluntary savings within the retirement system are the same five accounts as for mandatory retirement savings. "Towsver, curing te COVIO-1 pandemic (2020-202). thres estuiens ofsaugs were approved. Each restiton wes defied tobe 210% song’ wih met bound of approximately 1-100 USD ara an upper bound of approxmataly 4700 USD. "apo example, to rihist ud is Account A, whch vets 460% n eqs, while count fhe safest ae, vesting only upto 5a mrequtes The tnge invested haan for Account 8s 25%, trate AccouMC 1s 18% -40%, anid hat of Account (Posse nuas can choose a moat no vesiment accounts, Before 2002, ony one szeount wes avaiable Account). Te eheciteua fom penton fun’ petermance rave ben ling ve fe snce te reaton of he eyo, based on tne matty ote fnclel marie and cyses desirng fom 29 6% lo BK (Mesa Lago and Bervancy, 2010) ‘This article is protected by copyright. All rights reserved ‘Supplied tthe Bish Library 05 Ju 2022, 08:00 (BST)Accepted Article 3.2 Timing and notation ‘The individual starts each period with an information set 0. that includes past choices and knowedge about individual and market characterises. Variables inctude, for example, accumulated wealth for retirement (Az), work experience (Ej,), maftal state (M,), number of children (0. and health status (Hi). Lagged choices include the retirement portfollo chosen last period (piss) and optional savings lest period (si.-1). | include Individual exogenous characteristics (X,) (e.g.. gender, age, and schooling) and other exogenous marketlevel characteristics (Zi) (€g.,proes). | use f= [pie-sSizeri Ai ii Mii Mc Mi] 10 denote the set of endogenous variables influencing an individual's decision, Therefore, Me = [2 XuiZi) The individual { makes four choices each period ¢: employment status (e,,), occupation selection (oj), retirement portfolio choice (pi.), and optional savings(s,). They also realized ‘subjective assessments (elicited risk aversion and expected duration of life) and endogenous characteristics (family and health characteristics). Choices are realized jointly with subjective assessments and after the individual has observed ‘8 wage offer and a medical care consumption drawn. The period ¢ marital status (m,), changes in family size (n,), and health status (1,) are observed entering the period and updated after the individual has made her cholces. A summary of the timing assumptions is presented in Figure 1 (Online Appendts). 3,3 Estimable model 3.34 Wages {As inn extension of Mincer (1974), wages are a function of exogenous individual characteristics (%), human capital accumulation such as work experience (Ej,) or schooling, and job characteristics such as occupation category (o,.). Individuals may vary in thei level of productivity Because productivity is unobserved for the econometrician, | proxy fort assuming that productivity depends on family characteristics Ike marital status (mj), number of children in the householé (ie), and health status (H.). Wages may also depend on demand-side characteristics. Thus, | Include a vector of employment demand-side shifters (Zj)such as unemployment rates, ig = WE Oe Mie Ni Mie Ro 282) a vwhere elf represents unobserved wage variation, which is decomposed into a permanent (uf) ‘and a time-varying (vl!) component, and an idiosyncratic errr term (ef ‘This article fs protected by copyright. Al rights reserved, ‘Supple bythe Bren Library 05 Ja 2022, 08:00 (8ST)Accepted Article 3.3.2. Simultaneous wealth accumulation choices ‘Wealth accumulation choices (employment, occupation, savings and retirement portfolio) are presented in equations 2 to 5. Because the econometrician only observes wages if the individual decides to be employed, we can expect estimation bias arising from unobserved characteristics correlated across choices. For example, itis expected that savings choices and retirement portfolios are endogenously related to earings, as higher eamings increase the availabilty of resources to allocate to savings. Similarly, higher earnings increases retirement wealth, which may impact investment choices. In addition, wealth accumulation choices are jointly made, To prevent these biases, | jointly estimate wages with choices. Choices are a function of the same observed variables contained in 0,,. Choices are also 1 function of the permanent and time-varying unobserved heterogeneity, Pree i ne infra DY = Gat Zoabeh)s = 12 _ Peto =D) gs An mn ERED = ea eZee ¥8)) _ ! (Be Ki Zeon vf!) j = A, Bo C.DE ne weve) “ Pts =D) _ og, av I Fae = 0] 7 Sle Xe Zola vie) © where Bie =(iserSie-rAin Ei Mie/MesHa), and Hi and vi represent the correlated permanent and time-varying observed heterogeneity for each equation z ‘The per-period altematives are defined according to data avallabilly: e« = 0,1,2 indicate unemployed, working parttime, and working fulltime, respectively; oj, = 1.2,...6 indicate ‘occupation categories (elementary occupations; legislators, senior officials and managers, professionals, technicians and associate professionals; cltical support workers; service and sales workers; skied agricultural, foresty and fishery workers and craft and related trade workers and plant and machine operators and assemblers; f, = (01), j = A.B, C 0,8 Indicate fo investment or investment in Account J; and s ‘optional savings. (Once these decisions are made, retirement wealth accumulates according to exogenous market returns R..-1, which Is portfolio specific, and to new contributions following: Ase, = Aug" Rig(Du) + 0.10% 0.1 Indicate no optional savings or some ‘This article is protected by copyright. llrightsreserved ‘Suprledty the Bis Library 05s 2022, 08:00 (8ST)Accepted Article 3.3.3 Simultaneous subjective assessments Simultaneous subjective assessments correspond to elicited risk aversion (equation 6) and expected duration of life (equation 7). Because choices depend on the individual's utlity function, estimable demand functions depend on risk aversion." In the model, elicited risk aversion (7) can take one of three values (most risk averse intermediate, or least risk averse) This categorization follows the number of survey questions ((wo) and alternative scenarios per question (two). | allow elicited risk aversion to also depend on correlated unobservables (a permanent (uf) and a time-varying (vf) component) and an idiosyncratic shock Ce) tn modern considerations, risk aversion is simultaneously determined by the curvature of the lifetime utility function and the horizon length that defines the dynamic problem (Goller and Zeckhauser, 2002; Bornmier and Rochet, 2006). To capture this effect, | incorporate into the set of correlated equations a self-reported measure of expected life duration in years (Ti. that depends on observables (0,), correlated unobservables (uf, and vf.) and an idiosyncratic shock (cf) assumed to be normally distributed Prev Peay) 7PM Zev © Te TG Ke Zero e) @ ‘There is evidence thal abservd “lok aversion changes overtime (Splvey, 2010; Sahm, 2012; Parada-Contzen, 2019). This Is consistent with the theoretical models on risk aversion throughout the Ifecyole (Bommier and Rochet, 2006). The evolution in risk aversion is important for the design of public policy, where policy-makers should consider how the envionment could shift individuals’ risk preferences and their decisions and how public policy Interact with Individuals’ preferences (Sahm, 2012; Schildberg-Horisch, 2018) (One can expect more risk-averse individuals to select safer occupations (Bonin et al. 2007; Grazier and Sloane, 2008; Polimann et al, 2012; Fouarge et al, 2014). Risk aversion also negatively Impacts reservation wages (Pannenberg, 2010). Other evidence shows that more risk-averse individuals invest in safer retirement accounts resulting in less retirement wealth (Sunden and Surette, 1998; Bemasek and Shu, 2001; Arano et al, 2010; Neelakantan, 2010; Bucciol and Miniac, 2011), More risk-averse individuals are more lkely to accumulate less debt resuling in higher disposable income (Brown et al., 2013). Evidence also shows that financial circumstances impact rsk aversion (Andersen et al, 2008; Paravisin et al., 2017; Kettlewell, 2019), 7a ine lassie conception of Prat (1904) and Arrow (1965), ik aversion depends on he curvature ofthe static vy uncon *Saecause | am elinting redueeclorm parameters a estimated values area functin of he primitive (eructraparameters) of memocs This artile is protected by copyright. All rights reserved. Suppl by he rth Library 0 Jl 2022, 0800 (BST)Accepted Article Risk aversion interacts with other endogenous variables in the model. Risk-averse individuals are expected to have higher levels of medical care ullization, while health shocks might affect risk aversion (Decker and Schmitz, 2016). Risk-averse individuals are more conservative in family characteristics such as the timing of marriage (Eisenhauer and Ventura, 2003; Spivey, 2010; Light and Ahn, 2010) or number of children (Schmidt, 2008; Gorltz and ‘Tamm, 2015), Evidence also shows that parenthood increase risk aversion (Kettlewell, 2019). ‘Only a few papers have considered risk aversion in the modeling of muttidimensional individual decision-making processes in the reticement literature. Examples can typically be {ound in the structural Iiterature, such as Rust and Phelan (1997): French (2005); Blau and Gilleskie (2008, 2008); Van der Kiaauw and Wolpin (2008); French and Jones (2011); Joubert (2018). This paper, incorporates the impacts on risk aversion on decisions as an additional equation In the decision-making process without making assumptions about preferences and expectations. 3.3.4 Family outcomes Family outcomes, marital status (m,,,3) and variation in the numberof children (nye) are {ealized after the individual choices are made. This modeling assumption does notimply that the transition of family outcomes is an exogenous process. Because it Is expected that unobserved characteristics affect both choices and family outcomes (e.g, an indviduel may Jointly decide her employment status and whether fo have children that period), allow correlation between family outcomes and the rest of the equations of the model trough an eequation-specific permanent and a time-varying unobserved component. ‘The probably of translion lm being single n petod¢ +(x, = 0) 10 Being tarred (1,24, = 1) is given in equation 8 end depends on period «choices such as employment status (ex), predetermined state variables (f,), and exogenous individual charactristes (x,). Although not modeled explicty, | assume that there is @ mariage market such that supply-side factors (2) also affect marriage probabil. As before, there is @ permanent eror term (i), a corelated time-varying error term (vf) and an idiosyncratic shock (ef) assumed to be type- extreme value distributed Praca i # in a | = me Bi Xn ZEW) © Each period, an indvidual's numberof children in the household might increase, decrease, or remain constant. The probability of transitioning in period ¢ +4 (ne = Bit) relative to not transitioning (12.3 = 0) depends on that period's employment decisions (e,), predetermined endogenous choices (i,), individual exogenous characteristics (X,.), Supply side factors specific “This article is protected by copyright. Al rights reserved. ‘Supe bythe Brie Libary 05 tu 2022, 08:00 (BST)Accepted Article to the children market (Z#) such @s education prices, correlated permanent (uf) and time- varying (vf!) unobserved heterogeneity, and a random shock that is type-l extreme value distributed (ef). The transition probabilly is presented in equation. Pr(rises = J) "Pettiens = 0) (ee Be Xie ZP ath vi) = @ 3.3.5 Health characteristics Health is an outcome that Is produced at the end of each peri following a specification of Grossman (1972). The transition of health info the next period (H.,.:) depends on individual choices in period ¢ and other characteristics, Health status transitioning into the next period depends on current health status (H,) and ‘medical care consumption (lie) (which represents medical care inputs). The period ¢ employment and occupation choices (ei, and o,), in addition to other individualtevel exogenous characteristics (X,), also affect health transitions. Note that employment behavior may directly affect health or may be a proxy for omilted nonmedical care inputs, such as rutrtion and exercise, Market-level geographical characteristics (Z!!), such as rainfall, also Impact health status. Inches of rainfall proxy for environmental and climatological conditions in the region of residence of individual (that may impact an individuats health status. ‘The following equation represents the probabilly of being In health status j in period ¢ + 1, where j= (2.3.4) represent the categories good, regular, and poor, respectively relative 1o being in a very good hestth status (Hi.+1 = 1) Pere a A a His i i 22 iW, 10) e- ( sv «10 Hoalth status is tkely corelated with permanent and time-varying unobservables. Therefore, the ertor structure isthe same as in previous equations (if and vf!) Medical cae utilization isan endogenoue decision thats measured asthe number of medical visits, Medical care utlization in period ¢ + 1 depends on previous health status (H.), individual exogenous characteristics (i), and health market supply-side factors (2!) such as the number of hospital beds end medical doctors in each geographical region ofan individual's residence. its likely that medical care demand is correlated wth other unobserved characterstes, such as health insurance plans or employers’ health benefits, which, at the same time, are endogenously elated to employment and occupation selection isk aversion and duration of ite ‘Thus, medical care utlization also depends on permanent uf and vf). An idlosyneratic shock as usval is included (eS). The density function is presented in equation 11 ager = kM Ki Zt eD ay This article ix protected by copyright. Al rights reserved. ‘Supplied by the Britsh Lorry 06 Jl 2022, 08:00 (857)Accepted Article 3.4 Error structure The error in each equation z has the form: eheuptvit eh (12) where z= (W,E,0,P4,P#,P¢,P?,PE,5,R,7.M,N,K,H) represent equations 1 to 11, ef corresponds to the total unobserved heterogeneity, 1? and vi represent the correlated pecmanent and time-varying unobserved heterogenely, and ef is an idiosyncratic shock, Independent and identically distributed (lid). ef is assumed to be a type-t extreme value distributed for discrete dependent variables and normally distributed for continuous variables, ‘The correlation across equations cames from yf and vi. The likelihood function together with dotails on the intial conditions errar structure are presented in the Online Appendix. Ljointy estimate the equations using the discrete factor method (OFM). The DFM has been Used In several applications when unbiased estimates are required for simulation purposes."° Typically, full information ikelinood methods require assumptions about the distribution of uf and vf, (Morales et al, 2016). Nevertheless, the DFM does not impose any distributional ervor ‘assumption (Guilkey and Lance, 2014). | determine the number of mass points, the mass point locations, and their probablites jointly withthe rest ofthe estimated parameters. Identification In the DFM is standard. The detells regarding identification in this paper are presented in the Oniine Appendix 18 See, for example, Parade-Consen (2020) or an appcaton in pension systems and Giles e (2077; Moraes eta (zotey Fou snd Giclee (2015), Gilecie and Homan (2044), Gardrerana Glesiie 2042) Yang e (2008 or apples ‘Sir stings| “This articte is protected by copyright. All rights reserved ‘Supp bythe Erich Linrary 05 ul 2022, 08:00 (BST)Accepted Article 4 Data source and research sample |use the first 4 waves (2002, 2004, 2006, and 2008) of the EPS. The EPS is administered by the Ministry of Labor and Social Seourity in Chile and has been widely used for retirement policy evaluation (Behrman etal, 2011; Joubert, 2015; Krasnokutskaya et al., 2018; Parada-Contzen, 2020; Bucciol et al., 2020). The EPS Is linked with administrative records of the Chilean ‘Superintendence of Pensions, which includes information on work trajectories and savings starting in 1981 when the system was introduced. The early Chilean experiment provides an extensive data set with 2 long history and the unique opportunity to analyze the wealth effect of life-cycle events using a long panel ‘The research sample consists of 7,168 individuals observed four times. All individuals were ‘aged between 25 and 59 years old limits Included) in 2002 and were observed in all four waves with no missing information for health status, optional savings, work experience, martal status, cr region of residence. The age limits introduced to focus on decisions of the working lifecycle. ‘The other restrictions are introduced since a dynamic panel is required for he estimation. Except for an overrepresentation of the fst educational category (less than high school), ‘no major differences in demographic characteristics are observed between the full sample and the research sample, discarding selection issues in the research sample (Table 8.1). For summary statistics, see Table 1 Table 1: Summary statistics of dependent variables for research sample ik Estimator Mean Sid Dev. Win Employment ‘miogit| Full-time employed 0g90 04820 Part-time employed ost 0% = ot Not working oz ows st Occupation (if working) miogit 18307 Elementary occupations oz 044 ot Lgi., prof, tech., other ots 603 =O Clerical support workers tor 038 = ot Service and sales workers cae ee Agricultural, craft and trade 0057 0231 o 4 Operators and assemblers ree Retirement portolio leait 21,508 ‘Account A (riskiest) Cn a ‘Account B 0231 0 200 ‘Account C Oa On 0 ‘Account D 0218 ott o 4 Account E (safest) cS a Savings outcomes logit 21,490 ‘Any optional savings 0263 oat o 4 Expected lifespan ols 75780 10081 = 11017287 Elicited risk aversion rmiogit 20587 ‘Most risk averse 77 04 ot Intermediate risk averse oom 0285 = st Least risk averse 0177 0381 o 4 Log of wages ols 0857-1440 10219 6.255 14,705, Marita status logit 21,504 Married ost 045 st This article és protected by copyright, Al rights reserved ‘Suppl by the Bris Library 05 Ju 2022, 08:90 (BST)Accepted Article Variation in children, logit No change 788 Decrease o.t84 Increase oes Medical consumption ols ‘Number of medical visits 6697 Heath status logit Very good ons7 Good 0519 Regular 0.266 Poor 0.068 ‘This article is protected by copyright. All rights reserved ‘Supplies bythe Bech Libary 05 Jl 2022, 08:00 (887) 408 0387 0.165 21,060 21.488 14236Accepted Article 5 Results 5.1 Estimation results Four permanent and four time-varying mass points are sufficient to capture the distribution of correlated unobserved heterogeneity. | compare observed and simulated behavior using the model as data-generating process (Table C.2). No significant difference is found between simulated and observed data at the 1% significance level. | use the estimated dynamic decision mode! to simulate the effects of family and health characteristics considering the sequential process by whch individuals accumulate wealth over time, Estimation results are available in Tables C.3-C.10. 6.2 Simulation results ‘Simulations folow the standard procedure in DFM papers."® For each scenario, | compute changes In retrement weaith atthe end of seven years across the wealth distribution In each case, I simulate a por year effect to alleviate differences due to family and health characteristics. To compute the total wealth effect, one needs to consider the number of years that the individual was affected by the specific circumstance. | provide examples of a 40-year effect, meaning that all impacts happened when the individual was 25 years old. To consider a diferent time horizon, the reader ‘can consider the per year effect times the number of years she wants to simulate, *85cn individual i epinted 100 times, towing draws from the unobserved heteragenelydtbuton. Ever Indu ‘enters the frst period with thelr intel observed characteris, exoept when otherwise specifed. As 2 baseline fr ‘comparison, urless others specie, | use simulates oulcomes Updated according othe estmated model. Booistrapped ‘Standard erors are computed using 100 draws “This article is protected by copyright. Al rights reserved ‘Suppl by the Brish Lary 05 Jul 2022, 08:00 (ST)Accepted Article 5.2.1 Accumulated wealth distribution Table 2 presents the distribution of retiement wealth for the baseline model." Retirement wealth is substantially different across genders, favoring men over women. This is consistent with previous evidence. See, for example, Fernandez-Lopez et al. (2015) and Vara (2013) for European countries, Austen et al, (2014) and Feng et al. (2019) for Australia, Gibson et al. (2008) for New Zealand, and Zhao and Zhao (2018) for China. ‘This gap may come from the standard gender wage gap. Results indicate a significant ‘gender wage gap of 19.6%. Using the first three waves of the EPS (2002-2006), Perticara and Bueno (2009) find a wage gap between 12.7% and 18.7%; while using administrative records on unemployment insurance (2004-2008), Cruz and Rau (2022) find a wage gap of 24.5%, Consistent with evidence from other countries, the inequality of pensions among women is lower than that among men (Vara, 2013). ‘Additionally, contributing to wealth differences across genders is the role of risk preferences, Consistent with previous evidence (Grable, 2000; Grazier and Sloane, 2008; Dohmen et al. 2005, 2011; Arano et al., 2010; Le et al., 2011), | find that women are more risk averse than ‘men and select safer retirement portfolios. ‘Table 2: Distribution of retirement wealth in the last period (baseline model) Retirement wealth Al -Wemen Mier m2) ean 2,960 8015 6,128 Percentile 1% = 0B 831,007 5% 1,082 692384 10% 1849 1,118 3.205, 25% 3716 2408 5613 50% 7.605 4.918 10711 78% 15,302 10,119 19280 90% 28,889 20580 33372 95% 42,035 32569 48,850 9 8 60828. ‘Note (a) Al amounts i dota of 2008, 6.22 Family characterist Martel status ‘Two scenarios are simulated: |) individuals are simulated to be intially married and 1!) individuals are simulated to be permanently married entering the initial period with observed characteristics. For), the percentage change in accumulated wealth is computed with respect to the baseline simulation, while Il) compares the accumulated wealth of being permanently married versus being permanently single, For the design of polices, one needs to select which “This article is protected by copyright. Al rights reserved. ‘Supe bythe rts Library 05 9 2022, 08:00 (BST)Accepted Article is the relevant counterfactual and the scenario for comparison. In the marriage setting, it makes sense to design policles based on what individuals gain or lose due to their marital status {simulation |), However, to understand how marital status affects wealth accumulation over time, itis also important to quant the effect of being married by itself (simulation I). Simulation resulls are presented in Table 3, while wealth impacts are presented in Table 4 and 8, "For example, when ete are computa for3 woman's average west, he stow of Column 28 used “This article is protected by copyright. Al rights reserved. ‘Supplies bythe Betsh Lorry 05 Jl 2022, 08:00 (8ST)Accepted Article (On average, there Is a postive, statistically significant effect of mariage on wealth accumulation. This result throughout the distribution is driven by men. Note that the effect varies across gender. While itis positive for men across the entire wealth distribution, the effect Is negative for women in the first percentile and positive for women in the upper percentiles. No statistically significant effects are found for women inthe middle of the distribution. For men, at the mean, retirement wealth increases by 0.77% if individuals start the 7-year period martied and increases by 3.37% when comparing being permanently married with being permanently single, The effect of being marred is substantially larger forthe fist deciles of the distribution. For example, at 10% and 25% of the distribution, the effects of being permanently married on retirement wealth are 11% and 8%, respectively. For women, there is no statisticlly significant effect at the mean, and the results are substantial only for the bottom of the distribution ‘The results are consistent with patterns documented in the literature. Addo and Lichter (2013) find that married women who stay married accumulate greater wealth than those who interrupt their marriages (equivalent to scenario I). Knoll et al, (2012) find that married individuals are more likely to participate in defined contribution plans and that single women save less fr retieement. Honig and Dushi (2010) find that married respondents and males are ‘more ikely to enrol in retirement plans and contribute more to their accounts, ‘The results show two sources of inequality. On the one hand, men accumulate greater wealth when marred, generating inequality across genders. On the other hand, poor women accumulate less when married, generating inequality across the wealth distribution, Thus, two effects can be calculated. The fist corresponds to gender differences computed for every percentile of the wealth distribution using both the mean and median of men’s wealth (panel ) of Table 4). The second corresponds to wealth diferences among women in the bottom 10% of the wealth distribution, which represents wealth inequalty among women (pane i) of Table 4). The amounts are computed using the annualized rate of wealth differences found in Table 3 (columns 3 and 6 for gender differences and columns 2 and 4 for the extra bonus) per percentile using men’s mean and median wealth for the fist case and women's mean and ‘median wealth for the second case. This article is protected by copyright. Al rights reserved. ‘Supls bythe Bren Library 05 2022, 08:00 (8ST)Toalloviate gender inequality in wealth accumulation due to marital status, amounts should bee specific to the individual position in the wealth distribution. In this ease, gender inequality ranges between 177 and 6,252 dollars, with an average of 710 dollars. | also compute the difference at the median of men's wealth, leading to smaller wealth effects across the distribution, To alleviate inequality among women, amounts should vary between 1,065 and 3,912 dollars. For example, for married women in the 10th percentile ofthe wealth distribution, her impact on wealth accumulation is 5,005 dollars, while for married women in the 99th percentile of the wealth distribution, her impact is 177 dollars. (One could also choose other parameters to compute wealth impacts (e.g., using median values) or the wealth distribution specific to married women, Policy-makers could also consider ‘a benchmark wealth level (.¢., 40 years of continued contributions). n any case, itis important to note that an advantage of this procedure is that wealth effects calculated are independent of other policy variables. Furthermore, computations are based on the actual effect of the variable on life-cycle wealth accumulation. Policy-makers need to decide the scenarios that will be used for the computation, For this purpose, | also provide the effects for scenario il (Table 5) Table 3: Effect of marital status on retirement wealth (percentage change at the end of seven years) Initiaty married Permanently married AT Women Men All Women ‘Men ® @ 8 (8) (6) Mean 065" 028 O77" 24t™* 071 3.37 (0.18) (0:38) (0.14) (0.63) (0.98) (0.61) Percentile 1% 5.20% -7.95" 6.98 14.73" -31.14"™ 17.957" (235) (338) (1.57) (7.08) (8.36) (4.69) 5% 231-497" 3.99" 5.93 -18.15"* 12.46" (1.54) (2.26) (1.00) (4.42) (6.30) (2.94) 10% 0.45 3.75" 3.35% 0.96 12.61" 10.50%" (141) (7.86) (0.74) (324) (14) (2.24) 25% «© 147-127 2.50 4.55% 4.19 7.95T (652) (1.32) (042) (1.55) 87) (1.3) 50% 14a 0.17 1.30% 431m 052 4.88 (030) (0.80) (6.24) (6.85) 208) (0.87) 78% ose 064 ose 3.09" 169 2.09" (6.16) 53) (0-13) (0.62) (1.19) (0.65) 90% O34 OBI O31 1.75 1.64%" 2.05" (6.08) (0.30) (0.08) (043) (0.75) (0.47) 95% oa gad O20" 1.50" 114 1.68" (6:08) (0.19) (0.05) (0.38) (51) (0.38) 99% 010 0.29 ote 1.25" 1.06 14a (0.07) (019) (0.05) (6.30) 048 (0.30) Nota: (@) Columns 1-3, percentage change inrelrement wealth with respect to the baseline simulation. Columns 4-8, percentage change in retirement wealth when Accepted Article This article is protected by copyright. All rights reserved, ‘Suppiod by the Brifsh Urry 05 Jl 2022, 08:00 (8ST)Accepted Article permanently marred versus permanently single. (b) Permanently marred stating at year 2.(c) Bootstrapped standard errors are given in parentheses, obained using 100 draws "8," Significant atthe 10%, 5%, and 1% levels, “This article fe protected by copyright. All rights reserved ‘Suppi by he Brsh Library 05 Jul 2022, 08:00 (BST)Table 4: Gender and distributional differences on wealth due to marital status when initially married (dollars) Accepted Article Initially married “Fanualzed _Yeary bonus @0-years bonus rate (%) “Mean Median Mean Median T Gander diferences Mean ost 8 2 710 412 Percentile 1% os7 198104 6252 4,152 5% 0s 90 © 3612 2,399 10% 04778 0 3,040 2019 25% 03758 3 2,358 1,566 50% Go 2» 4,195 794 75% onde a) 9 542 360 90% 0.04 7 5 283, 188 95% 0.03 5 3 188 125 99% 0.03 4 3 17 118 TW) Inequality among women (extra bonus for bottom 10%) 1% 108 (98 53 3.912 2,134 5% 073 85 % 2618 1,427 10% oss 49 2 1,985 1,072 ‘Note: (a) Annualized rato of etement weath growth computed based on Table 3 tolumn 2 for) ane column 2 fr I). (b) The yearly borus isthe product of the annualized rate of retirement weath ana the mean (or mecian) wealth for men in 1) ane for women ini, (6) The AO-years bonus 40 times the y ‘Alamount in dors of 2008 This article is protected by copyright, All rights reserved. ‘Supls bythe Britis Library 05 4 2022, 08:00 (BST) y Bonus. (4)Table 5: Gender and distributional differences on wealth due to marital status when permanently ‘matried (dollars) Tr Permanently married Ranualzed Yearly bonus —__40-years bonus, rate (%) “Mean Median Mean Median 1) Gender differences Mean 049 nr) 3,170 2,105 Percentile 1% 28 eee 18.492 12,280 5% 192 308206 12379 8.220 10% 1 to te 10,400 6,908, 25% 119192128 7,883 5,102 50% om 167 4,630 3.075 75% 043, 7m 47 2,808 1,864 90% 030 8B 2 1,914 4271 95% 024 3998 1542 1,024 99% 021 4 4378 35. T) Inequality among women (extra bonus for bottom 10%) 1% BON ice 167) 13098 7.472 5% A a 8,492 4.633 10% 16818283 6,086 3,309 "Note (a) Annualized rate of relitement wealth growth computed based on Table 3 ‘column 3 for i) ane column 2 for 8). (0) The yearly bonus is the product of the ‘annualized rate of retirement wealth and the mean (er median) weath for men in 1) and for women ini) (o) The 40-years bonus is 40 times the yearly bonus. (2) Allamounis in dolls of 2008. Accepted Article This article is protected by copyright, All rights reserved. ‘upped bythe Bech Library 05 Jul 2022, 08:00 (BST)Accepted Article Child effect “To compensate individuals for chidbearing effects on labor market experience, some counties have implemented compensations 60 that individuals who look after young chitdren ere not affected when ‘old. For example, in the Canadian public pension system, primary caregivers with children born after 1958 are eligible for @ modified rule for computing pension income so that lower wages during child rearing periods do not afect retirement income 2° in Chile, there is per-child compensation of 843, "spac is kroun as clearing provsions ‘This article is protected by copyright. Al Supple bythe Bris Library 05 Ju 2022, 08:00 (8ST)Accepted Article dollars that corresponds to a year’s contribution tothe minimum wage, payable to all women 2" To study the wealth impact of childbearing on individuals, | shock individuats with 1) an inital ‘extra child in the first period compared with the observed number of children and i) an initial ‘extra child compared fo no child in the initial period. The objective of comparing these two scenarios is to evaluate whether there are differences for “a marginal child” or “the first chil.” ‘The simulations presented here allow one to isolate the effects of family characteristics, simulating changes (1) in marriage status and (2) children. Allsimulation results are presented in Table 6 and wealth effects in Table 7. Because there ‘are no major differences between the two counterfactuals, for simplicity, compensations are calculated using |) ‘The effect of an additional child is substantially itferent for women than for men, Almost no significant effects were found for men, except for the bottom 5% of the wealth distribution, finding a positive effect of an additional child on wealth. In contrast, there is a significantly negative effect of an additional child for women in the bottom 75% ofthe distribution for I) and In the bottom 50% of the distribution for I). The effect of a marginal child decreases as one ‘moves up in the distribution, starting at-8.55% forthe bottom 1% and moving to -0.67% for the third quantile, The pattern isthe same for the effect of the first child. In this case, the source of Inequality comes from differences among women across the wealth distribution | compute the wealth effect using the annualized rate of wealth growth based on column 2 from Table 6. Two reference wealth levels are considered: women's mean and median wealth (see column 2 of Table 2). This amountis computed upto the 3rd quartile ofthe distribution, as no significant effects ware found above ths inthe distribution. Amount vary between 18 and 114 dollars per addtional child per year. Because the long-run effects on the labor market are accumulative, meaning that the impacts of taking time oto take care of young children might stl be observed long after the child ie grown, the bonus should be computed using the per year effects times the number of years the indvidual worked wile having @ chil. In simple scenario ‘where the child is born when the individual is 25 years ol, the total effect ranges between 344 ‘and 4,577 dollars. Recall the 843 dotars compensation in Chile, Witn the amounts proposed in this paper, poorer women wil be beter off, while wernen above the mean will be worse of. Nevertheless, the policy proposed here helps alleviate inequality among older women and Improves equitabilty outcomes, ‘Table 6: Child effect on retirement wealth (percentage change at the end of seven years) One initial extra One initial child child versus observed versus no initial child (marginal child) (first child) AI Women Men AT — Women Men (yee (a @) 4) 6) (6) Mean 012 06% 008 012 063" 0.10 (0.16) (0.32) (0.18) (0.18 (0.36) (0.20) Percentile This article is protected by copyright, AN rights reserved. ‘Suppo bythe Betsh Library 05 Jl 2022, 08:00 (BST)Accepted Article 1% 5% 10% 25% 50% 78% 20% 95% 99% 5.43" (231) -34t (1.33) 2.40" (0.93) 0.60 (0.49) 0.18 (0.31) 0.04 018 0.02 (0.10) 0.02 (0.08) 01 (0.08) 8.55" 04) 5.990" (2.08) 4750" (1.56) 2.81 (12) “1.39 (068) 067" 0.40 0.16 (0.23) 0.08 0.14) 0.00 (0.13) agree (1.54) 178" (4.05) 4.40 (0.79) 044 (0.52) 043 031) 0.01 on7 0.02 (0.12) 0.05; (0.09) oat (0.11) 8.64" (2.68) “3.64 (45) 2.42" (1.03) -0.58 (0.53) 0.24 (033) 0.06 020 007 11) 0.04 (0.09) 0.07 (0.08) 8.45" (3.52) 6.73" (2.28) 5.05" (1.79) -3.03"* (1.28) 1.35" (a7) 061 044 007 (0.24) 002 (0.16) 0.08 (0.13) agi (1.63) 2.04" Gn) 1.23 (0.85) 0.48 (0.58) o19 (0.34) oot 021 -0.02 (0.14) 0.01 0.10) 0.07 (0.41) Note (a) Percentage change in accumulated assets with respect to indicated case. (b) Bootstrapped standard errors are given in parentheses, obtained using 00 draws, wren" Signiticant atthe 10%, 5%, and 1% level, Table 7: Wealth accumulatc impact among women due to childbearing (dollars) 1 ne initial extra child versus observed (marginal child) ‘Annualized _ Yearly bonus __40-years bonus rate (%) “Mean Median Mean Median Mean os e caeesiamee ti Parcentile 1% by Wi 3 ee 5% 08s 7 438.169 1,729 10% 069 62 «42498 1.363 25% oat 7 201,486 800 50% 0.20 10718392 75% 010 9 5 344 188 90% la o 0 0 ° 95% na 0 0 0 0 99% nla ° 0 oa Note: (a) Annualized rete of retirement wealth growth computed based ‘on Table 6 columns 2 and 4 when the effect in such tables statstcaly signifcant. (6) sfa= wealth dference Is not statticaly aferent from zero, (e) The yearly bonus isthe product of the annualized rate of retirement wealth and the mean (or median) weath for women () The 40-years bonus is 40 tmes the yearly bonus, (e) All amounts in dollars of 2008, This article is protected by copyright. Al rights reserved. amount obtained fom the Chilean Supernindence of Pensions website ‘Supple bythe Ere Liorary 05 J! 2022, 08:00 (8ST)Accepted Article 6.2.3 Health characteristics Health status | simulate three scenarios: ) all individuals are hit with a transitory shock in the inital period ‘and are compared with the baseline scenario, I) all individuals start the seven-year period with poor health and are compared with the reference where all individuals start with good health, and lip individuals start the seven-year period with regular health and are compared as ifall individuals, start with good health, Simulation results are presented in Table 8, The resuits show no inequality across genders (except a few cases that are indicated) and only ‘evidence of inequality across the wealth distribution, The results allow us to rule out inequality across ‘genders dve te health ehocks. For simplicy, refer te the aggregated results (columns 1, 4, and 7) and compute wealth effects at an aggregate level. On average, a transitory shock has a total negative effect of 2.09%, The effect decreases as the position in the wealth distribution increases, ranging between 7.26% and 0.64%, Table 9 presents the aggregated effects. The most straightforward effects consist of those for 1), whieh, on average, compensates individuals for the shock considering their observed Conditions. The other two scenarios are a conservative case (scenario Ill, which does not compensate individuals for the worst-case health shock, and 2 benchmark for health policies (scenario I), which compensates individuals compared to being in good health, All amounts are Computed at the mean aggregated wealth, ‘The way to compute the health status bonus depends on when the shock occurs. The 40-year effect on individuals who face the shock at age 25 varies between 5,509 and 474 dollars, with an average of 1,548 dollars. In the benchmark scenario, the impact varies between 8,471 and 475, dollars. Ifthe shock occurs later in the life cycle, then take the yearly bonus times the number of years between retirement age and the health shock to compute the impact. Table 8: Effect of transitory health shocks (percentage change at the end of seven years) Initia! health shock Initia! good health Initia! good health versus observed versus initial poor health _ versus initial regular health A —Wornen Man All Women Men All Women Men’ (yee 2a) (4) 6) (een (ees) @ 10% -6.41" 6.59" 5.64" 9.17" 9.86r" 7.40" 4.31" Mean 2.09" 262" 185 2.95" 3.06" 205 119" 1.50" 1.06%" (0.45) (0.51) (0.45) (0.51) (0.80) (0.50) (0.21) (0.25) (0.21) Percentile 1% 7.26 -8,81" -7.83" 12.11" 13.19 12.96 5.92 5.74" 6.39% (172) (228) (1.64) (264) (3.56) (2.63) (1.18) (1.62) (1.17) 5% 6.79" -7.33" -6.68"" 10.307" 11.33 941m 477 5.38 4.11% (115) (438) (1.43) (187) (1.98) (2.01) (G74) (0.99) (0.84) 3,55" (0.66) (1.02) (4.10) (1.32) (1.44) (1.58) (1.78) (G61) 28% -5.A7"* 5.79" 4.47" 6.66" 7.90" 5.19" 3.18 3.76 2.56" (0.94) (0.90) (1.04) (1.21) (1.22) (1.25) (0.48) (0.54) (0.46)° This article is protected by copyright. Al rights reserved. Supple bythe Bis Library 05 $u 2022, 08:0 (8S)Accepted Article 5.53" 3,07" 2.01" 2.63" 1.53 (0.93) (0.73) (0.33) (0.39) (0.29)° aoe fea 1.25%" 17a Oo. (0.52) (0.25) (0.31) (0.22)° 1.26 0.72" 1.07% O71 (0.39) (0.18) (0.25) (0.18) Oger 0.56 075% 0.54" (0.31) (0.18) (0.18) (0.14) 50% -3.56" 4.43" (0.72) (0.74) 78% 2.33 3.240" (0.54) (0.64) 90% 1.97%" -2.10" (0.37) (0.50) 95% -1.01%" -1.24" -079% 1.08 (0.33) (0.36) (0.29) (0.35) 99% -0.64"" 0.96" 0.79" 0.65" 0.88" 0.42" o.4gr* 0.59" (027) (0.32)_ 0.31) _ (0.29) (034) (014) (0.18) _ (0.15) ‘Note: (a) Percentage change in accumulated wealth with respect to the baseline in columns 1-3, to poor health columns 4-6, and fo regular health in columns 7-10. (2) Bootevrapped standard ervore are given la parentheses, Sblained using 100 dave, sree Signfcant at the 10%, 5%, and 1% levels 2 © Cingeat a statistically significant ference between men and women a he 1,5 2nd 10 percent levels. This article is protected by copyright. All rights reserved. ‘Supplies bythe Besh Library 05 Jul 2022, 08:00 (BST)Accepted Article ‘Table 9: Wealth impact due to health shocks (dollars) T i 7 Initial health shock Initial good health Initial good health versus observed versus initial poor health versus initial regular health “Knnwal. Yearly 40-years Annual, Yearly 40-years Annual. Yearly 40-years fate bonus bonus _rate__bonus bonus _ rate bonus bonus Mean 030 -39~—~«SMBSSCOSS SSCS CONTRO Percentile 1% 107 138 = 6,809.65 212 ATI 0.83 106 4,246 5% 100 129 5140 141181 7.2577) 883489 10% oof 1214s 1.28162) 78 8,07 25% 076 97 3885 (0.93 «119 «4782045 582.808 50% 052 88 2858 O87 73 2927 028 37 1,485 75% 034 43 1729 035 45 «1800 «O17 2287 pay Oe 95% 018 19 Tag 018) 0s 700) 008 10 414) 99% 009 12 (arabe 0.0Gese1zeeteti75 tet OCS Een] 308 Noe: (a) Annualized rate of retirement wealth growth computed based on Table 8 colurms 1, 4, and 7. (6) All values computed atthe average wealth fo the entire sample. (c) The yeary bonus isthe produc ofthe annualized ‘ate of retrement weatth and mean weath forthe entre sample. (6) The 40-years bors is 40 times the yearly bonus. (2) All amounts in dolars of 2008, 6 Conclusion Because a proper retirement system should not only consider fiscal financing and sustainabilty ‘arguments, inthis paper, | contribute a mechanism for improving retirement outcomes considering ‘adequacy and equitablity, Using a nonstandard econometric approach, this paper quantifies the effect of exogenous changes in family structure and health shocks on retirement wealth ‘accumulation, The results show that women are most affected by family characteristic shocks, while no ‘Gender effects are detected for negative health shocks. The wealth impacts computed are based (on individual characteristics independent of other policy variables that might not be focused on alleviating poverty and inequalities (e.g, minimum wages). The results indicate that a woman located in the middie of the wealth distribution who was married with 2 children and who suffered a health shock in the last 10 years of her working life cycle accumulated 3,293 dollars less than her counterpart Future research could explore the possibilly of modeling intrahousehold choices. 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