(McKiernan, 2021; French et al., 2022).

Individual savings account systems seem to be associated with increased _aggregate_ welfare but slightly worse _aggregate_ employment outcomes than pay-as-you-go pension schemes. Specifically, McKiernan (2021) show that the 1981 privatization of the Chilean social security system—which changed the pay-as-you-go system for an individual savings account scheme—led to large aggregate long-run welfare gains. However, the authors found welfare losses for two groups: retired manual laborers at the time of the reform and white-collar workers within 5 years of retirement at the time of the reform. French et al. (2022) exploit a Polish pension system change affecting those born after 1948—from a defined benefit (the pay-as-you-go system is an unfunded defined benefit scheme) to a notional defined contribution scheme (i.e. a _notional_ individual savings account system)— to show that the switch led to an employment increase among the young individuals (those in their 30s) but to a decrease of employment for those at older ages. This reduced overall labor supply across the life-cycle by 2 months. The findings arise from a life-cycle model that replicates the employment elasticity with respect to the return to work of 0.44 for ages 51–54 estimated by the authors using the universe of taxpayers and the sharp cohort-based discontinuity in the link between current contributions and future benefits.

The pension system interacts with the level of informality. The informality margin is a quantitatively important channel that should be considered in reform analyses since it might alter the policy needs. McKiernan (2021) finds that the existence of informality decreases the long-run welfare gains from privatizing Social Security. Moreno (2022) shows that contributory pension systems in economies with large informal sectors (both pay-as-you-go or individual accounts) have important impacts on the decision to work in the formal sector and that removing them can increase welfare in a context where a non-contributory means-tested system for those uncovered is also available.

When it comes to the effects of specific policy tools, the evidence shows considerable differences across them. Tkhir (2021) shows in a set of counterfactual policy exercises performed on a general equilibrium model in Brazil that a number of separate policies satisfy the long-term fiscal goal of compensating for the effect of demographic change: increasing the payroll taxes, reducing the replacement rate, raising the required years of contribution, and increasing the retirement age. The increase in the payroll tax (from 11% to 34%) increases the share of informal workers by 39 percentage points (compared to the case of no reform), leading to the largest welfare loss of 17.5% compared to the alternatives. The decrease in the replacement rate from 70% to 60% instead increases long-run welfare by rising formal wages and the share of formal workers by 4 percentage points. In the long run, the reform increases lifetime welfare by 3.6%. The increase in the required years of contribution from 15 to 40, increases formal wages and reduces the share of informal workers by 7.6 percentage points, leading to a long-term welfare gain of 6.7%. The rise in the retirement age by 5 years slightly reduces the share of informal workers (0.4 percentage points) while having no major effect on wages; leading to a 7% welfare gain. Furthermore, there is evidence that raising the retirement age not only increases the employment level of workers close to retirement age but also of younger workers. Carta et al. (2021) quantify the effects of a policy-induced sharp increase in retirement ages on workers of different ages using Italian matched employer-employee data.

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