Assessing the distortions of
            mandatory pensions on labor supply decisions and human
            capital accumulation : how to bridge the gap between
            economic theory and policy analysis
Mandatory pension systems play a major
            role in individual savings and labor supply decisions. In
            particular, it is well known that defined benefit pension
            schemes, which are not actuarially fair, can create
            incentives for early retirement and therefore reduce labor
            supply and the stock of human capital in a given country.
            This is an important policy issue in middle-income
            countries, with still low participation rates in the labor
            force, where the "window" opened by the
            demographic transition is already closed or will close in
            the near future.  In these countries, policies to stimulate
            private sector growth, competitiveness, and employment
            creation should be accompanied by policies that increase
            labor force participation, raising the ratio of active to
            inactive population and therefore the potential for higher
            income per capita growth.  Unfortunately, the analytical
            tools developed to assess pension reform options tend to
            focus on the financial sustainability of the schemes and the
            adequacy of benefits.  Little attention is given in practice
            to the social costs imposed by distortions on the supply of
            labor.  In part, this is given by the lack of analytical
            tools that, in the context of limited information regarding
            individual preferences and behavior, can be used to assess
            the magnitude of these distortions.  This paper develops
            methodologies that can bridge the gap between economic
            theory and the practices of pension policy personnel under
            conditions of deep uncertainty regarding the variables
            driving individual behavioral responses to policy changes.
            First, the paper develops an indicator to predict the
            age-specific retirement probabilities induced by a
            particular pension system, given heterogeneous individual
            preferences over risk, consumption, and leisure.  The paper
            then describes how this indicator can be used to project the
            size of the labor force by gender, age and skill level and
            therefore the dynamics of human capital accumulation.  The
            integration of these two analytical tools allow us to show
            the impact of a particular pension reform proposals on the
            dynamics of labor supply, human capital and, given the
            dynamics of capital and total factor productivity, economic
            growth.  Furthermore, the paper develops a set of life-cycle
            income measures for typical individual paths that allow us
            to measure the contribution of segmented pension schemes to
            the segmentation of the labor market.  The methods are
            applied to the case of Morocco.