The Impact of Social Security Reform on Women in Three Countries

Policy Reports | Social Security | Work & Wages

No. 264
Tuesday, November 04, 2003
by Estelle James, Alejandra Cox Edwards & Rebeca Wong

How Pension Systems and ReformsAffect Women and Men Differently

"In general, woman work fewer years than men and earn fewer wages, yielding lower retirment incomes."

In most public pension programs, workers receive benefits that depend on wage history, years of work or more directly on their contributions. These contributory social security systems developed because pensions were viewed as a replacement for wages upon retirement and people are more willing to pay the tax that finances the system if they receive a contingent monetary benefit in return. However, women are likely to have worked and contributed for fewer years than men and to have earned lower wages when working, which gives them a smaller pension when retired. The labor market and demographic differences between men and women that affect their pensions are well known.

Labor Market Differences between Women and Men. Differences in employment and wages and the lower retirement age for women than men in many social security systems reduce benefit levels.

Labor force participation rates. Women, especially married women, traditionally have less continuous employment than do men due to the division of labor within the family.

  • By the age of 65, the average woman without a university degree in all three countries has accumulated 18 to 27 years of work experience, while the average man has accumulated 38 to 44 years.
  • On average, women in Chile work and contribute to the system only 70 percent as many years as men, while in Argentina and Mexico this ratio is only 50 to 60 percent.
  • In all three countries, the gender gap in labor force participation narrows substantially for the minority with higher education but it never completely disappears.

A large gender gap persists in industrial countries too. For example:

  • In the United Kingdom, Canada and Australia the female labor force participation rate is 15 percent to 25 percent below that of men, and much of the female labor is part-time.4
  • In 1960 the female labor force participation rate in the United States was less than 50 percent that of men, but by 1996 it had climbed to 80 percent that of men.5

In the United States, women's labor market experience is converging with that of men, and younger cohorts are more likely to remain in the labor force throughout most of their adult lives. However, this convergence is very gradual and the growth in the propensity of women to work seems to be slowing.

Wages. In Chile, Argentina and Mexico, younger women who work earn almost as much as men, after controlling for age and education. However, earnings diverge with age - prime age male earnings rise 2 to 3 percent per year while female earnings rise 1 to 2 percent per year.

  • In these countries, at age 20 women earn on average almost as much as men, but the wage disparity increases with age and by age 50 they earn only 60 percent to 70 percent as much per month of work.6
  • In the United Kingdom, Canada and Australia, women's hourly wage rates, on average, are 70 percent to 85 percent as much as men's.7
  • In the United States, median earnings for full-time women are 70 percent those of men but this becomes 80 to 85 percent after controlling for age, education, work effort and other relevant variables.8

"The normal retirement age is five years earlier for women than for men in Chile and Argentina; thus they contribute and earn interest on personal accounts for fewer year and their annuities are spread over more years of retirment."

Different retirement ages for men and women. Social security rules in many countries allow women to retire earlier than men. For example, women are permitted to retire five years earlier than men in Chile and Argentina, and also in many European countries. These differential rules started in traditional defined benefit systems and they frequently continue in reformed systems. The United States is one of a small group of countries with equal retirement ages for both genders and this helps to equalize social security benefits for men and women with the same earnings.

Demographic Differences between Men and Women. The longer life expectancies of women and the greater likelihood that they will be widowed in old age increases their chance of poverty in retirement. This is especially true in countries with an earlier retirement age for women than for men.

Longevity. In most countries, women at age 60 have a life expectancy that is three to five years greater than that of men. They also tend to marry men a few years older than themselves. In Chile, for example, a woman who retires at age 60 can expect to live 7.5 years more than her husband when he retires at age 65, on average. In the United States the difference in life expectancy at age 65 is three to four years and, in addition, wives tend to be younger than 65 when their husbands are 65. Thus any given retirement accumulation yields lower annual pensions for women, especially if gender-specific mortality tables are used for annuitization, as in Latin America. In the United States, unisex tables are implicitly used by the Social Security system and are required in employer-sponsored pension plans.

Widowhood. Because they are younger than their husbands and have greater life expectancy, women are more likely to become widows than men are to become widowers. In the United States, 72 percent of women age 80 to 84 are widowed but only 27 percent of men. In the 85-plus age group, only 9 percent of women are living with their spouses.9 Hence survivors' pensions are of key importance to women. Without survivors' benefits, nonworking widows are likely to find themselves impoverished. Even widows who have a pension of their own would find their household income cut by as much as 70 percent without survivors' benefits. Since household costs fall by only 35 percent when the husband dies, due to household economies of scale, widows find their income falls far more than their cost of living. Survivors' benefits fill in this gap.

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