Volume 44, Number 173,
April-June 2013
Automatic Stabilization and Social Security:
Brazil, Mexico, Costa Rica and Chile
Eloy Fisher

The four social security programs examined in this study are those managed by the Brazilian Ministry of Social Welfare (specifically, the National Social Security Institute), the Mexican Social Security Institute (imss), the Costa Rican Social Security Fund and the Non-Contributory Welfare Pension Program (pasis) of Chile. Although there are key differences among the specific elements of each programs and the details of their daily operation, all have some sort of subsidiary backing from the State, either completely (through direct payments of expenditures from the general budget set by the law) or partially, as is the case in Brazil, Mexico and Costa Rica, where enrolled persons contribute to the program.

These factors are important to the methodology. How can the effects of different programs be made commensurate to their reactions to the economic cycle? The pasis program was included based on its macroeconomic weight, although it has a lower margin of “elasticity” because its expenditures are set by law. Still, between 1990 and 2005, pasis contributions rose in absolute terms by 120%, while minimum pensions increased by 50.8%, the minimum salary by 93% and benefits for those administrating the pension funds rose by 66% (Bertranou, Gana and Vázquez, 2006). Given these magnitudes and the fact that their financing comes from general revenue of the central government, there is some level of mediation between general government revenue throughout the economic cycle and the budget for pasis funds in the framework of that revenue. In effect, eliminating the program would not significantly affect the strength of the results.

The following section discusses some of the most important aspects of the programs and some details of their macroeconomic footprints.

A Review of Programs in Brazil, Mexico, Costa Rica and Chile
The National Social Security Institute (inss) of the Brazilian Ministry of Social Welfare

The first attempt at a pension program in Brazil was in 1888, with the approval of a retirement plan for postal employees. But in 1923, the Retirement and Pension Fund was created, formally marking the start of the application of pension policy in Brazil. Since that date up through the 1960s, different retirement and pension funds were in use, until the unification of the system by the Organic Social Security Law in 1960. Six years later in 1966, the National Social Welfare Institute (later renamed to Social Security) was formed, which would be the body charged with centralizing the retirement system and, soon after, handling worker’s compensation. In 1974, a ministry-level position was created, separate from the labor portfolio, to follow up on social security policy in Brazil. Since then, this role has overseen labor and retirement benefits, previously under the umbrella of the inss.

Statistically speaking, benefits paid by the inss represented nearly 15% of gdp (in usd) in 2009, with marked increases since 2002, when benefits only accounted for 4% of gdp (in usd). However, contributions also saw a large increase in the same time period, going from 3% of gdp (in usd) in 2002, to nearly 12% in 2009. As a result of the administrative reforms at the end of the 1980s and the mid-1990s (Da Silva and Bochetti, 2002), which extended contributions, a limit was established for retirement and special retirement was eliminated. Additionally, the deficit gap for the program was closed through 2002, going from nearly 9% of gdp (in usd) in the mid-1990s to 4% of gdp (in usd) in 2010.

Mexican Social Security Institute (imss)

The imss was launched in 1942 as a response to increasing salary mass among the Mexican population, which in the decade from 1930-1940 grew from a third of the population to more than 45% (Soria, 1995). Soon after in 1959, the Social Security and Services Institute for Government Employees (issste) was created. The two institutions currently cover around 67% of the Mexican population (Arreola and Paddilla, s/f). The debt crisis and inflationary spiral in 1982 prompted deep reforms to the system to restrict coverage and reduce spending. During the administrations of presidents Miguel de la Madrid (1982-1988) and Carlos Salinas de Gortari (1988-1994), the program was restructured through an ambitious decentralization and cost-rationalization plan, to the detriment of vulnerable populations.

In 1997, the new Social Security Law was approved, transferring some of the pension management to Specialized Retirement Savings Fund Investment Associations (siefores), which handled three of the five pillars of the system to manage funds and investments of these new individual pensions. Meanwhile, the imss was focused on the fiscal elements of these private accounts.

The imss currently has a surplus between contributions and expenditures, which has stayed around 1% of gdp (in usd) since the 1990s, although demographic tendencies make this unlikely to be sustained. Projections indicate that by 2050, 25% of the population will be over 60 years of age, which will undermine this resource. Likewise, these reforms were accompanied by lower density of contributions (resources accumulated per hour worked) and low coverage (Ramírez, 2008). Regarding this rate, there is a clear downward trend, from 49% in 2001 to 36% in 2008. This means that if the trends stay constant, 36% of those enrolled in an individual account will have the minimum contributions to access a pension. Coverage is even more dramatic. By 1991, 66% of salaried workers had some type of benefit. By the end of 2008, a bit more than half (37%) had health services and social security.

Licencia de Creative Commons  Problemas del Desarrollo. Revista Latinoamericana de Economía by Instituto de Investigaciones Económicas, Universidad Nacional Autónoma de México
is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

Published in Mexico, 2012-2019 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 50, Number 196 January-March 2019 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: February 15th, 2019.
The opinions expressed by authors do not necessarily reflect those of the editor of the publication.
Permission to reproduce all or part of the published texts is granted provided the source is cited in full including the web address.
Credits | Contact

The online journal Problemas del Desarrollo. Revista Latinoamericana de Economía corresponds to the printed edition of the same title with ISSN 0301-7036