| The World Bank (2007) | |||||||||||||
Abstract | |||||||||||||
| Summary findings In recent years- as a result of economic contraction, Reform is essential. Restoring the former system declining employment and real wages, and changes in the would be too costly, and maintaining the status quo behavior of the labor market- Ukraine's tax base of the would make the system unsustainable. social security system has declined, threatening its * Reforms which focus on short-term budgetary sustainability. About 40 percent of the labor force works effects and neglect the interactions between the social in the informal sector, paying no taxes, and many security system and the labor market are likely to fail. members of the formal workforce underpay taxes a Raising the retirement age to 65 would have a because they also do informal work. significant financial impact but would need to be Using a model that links the social security system, the accompanied by deeper structural reforms. Raising the labor market, and the macroeconomy, Riboud and Chu retirement age quickly may entail the least political cost, ran simulations to assess the sustainability of the current as many old people are currently working. pension system and the relevance and viability of possible * For the deeper structural reforms needed, reforms. All simulations assume economic reform and introducing a funded-tier should be considered. It would the resumption of growth. They conclude: be an effective way to correct distortions and restore * Economic contraction is not the only cause of credibility. problems with the pension system. To reverse current- Introducing such reforms will be costly and affect trends, most of the labor force would need to be working several generations of workers and pensioners in in the formal sector-incentives. an unlikely event, given current different ways. Tradeoffs must be carefully evaluated. | |||||||||||||
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