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Extending pension policy in emerging Asia: An overlapping-generations model analysis for Indonesia

Crawford School of Public Policy
Photo by World Bank on Flickr

Event details

ACDE Seminar

Date & time

Tuesday 10 May 2022
2.00pm–3.30pm

Venue

Weston Theatre and Zoom

Speaker

George Kudrna, University of New South Wales

We examine the economy-wide effects of government policies to extend public pensions in emerging Asia - particularly pertinent given the region’s large informal sector and rapid population ageing. We first document stylized facts about Indonesia’s labour force, drawing on the Indonesian Family Life Survey (IFLS). This household survey is then used to calibrate micro behaviours in a stochastic, overlapping-generations (OLG) model with formal and informal labour. The model is applied to simulate pension policy extensions targeted to formal labour as well as to informal labour. We find that (i) the first set of pension policy extensions (that have already been legislated and are being implemented in Indonesia) have positive effects on consumption, labour supply and welfare (of formal workers); (ii) the introduction of social pensions targeted to informal workers at older age generates large welfare gains for currently living informal elderly; and (iii) the overall pension reform leads to higher welfare across the employment-skill distribution of households. We then extend the model to account for demographic transition and derive further policy implications.

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