This year, the Bedrosian Center welcomed a new faculty affiliate, Emma Aguila. Aguila is an Assistant Professor in the Sol Price School of Public Policy, and her research focuses on the economics of aging and labor dynamics of migrants in Mexico and Latin America. She has an interest in how governance plays a role in the implementation of programs that serve the well-being of the elderly and the development of social policy. Dr. Aguila recently sat down with the Bedrosian Center to talk about her recent research on two different pension programs in Yucatan, Mexico.
Give us an overview of this research.
We studied the effect of differences in payment frequencies across two noncontributory pension programs. In one program payments are paid monthly, while in the other program, payments for double the amount are paid bimonthly. We found that the payment frequencies have an effect on how the money is used as well as how recipients interact with others. For example, the monthly pension program is associated with less need for support from charities and a stronger increase in satisfaction with social relationships. The bimonthly pension program, on the other hand, is associated with a larger increase of transfers from recipients to other family members, and a smaller improvement in satisfaction with social and family relationships.
Why is it important to study this topic?
The aging of the population in developed and developing countries has become a pressing challenge in terms of providing health care and social security benefits in old age. The population is aging more rapidly in developing countries and these countries are also facing higher poverty rates in old age. For example, in Mexico, the population 65 years old and older is expected to increase more than double from 7.9 million in 2014 to 24.2 million in 2050. Moreover, 45.8 percent of Mexicans 65 or older lived in poverty in 2012. It is crucial to formulate social policies that improve wellbeing in old age before the largest cohorts born between 1980 and 2005 start retiring in Mexico in 2040.
What role does governance play in your work?
Governance plays an important role in the effective implementation of the pension program to alleviate poverty in old age. For example, at first sight, differences in implementation such as the frequency of payment may not seem to have large effects because the targeted population and the amount of the pension are very similar. But we find that, for the lower-income population, the frequency of the payment determines how the pension is spent. If the pension is paid monthly, then it boosts doctor visits, reduces the incidence of hunger spells, and increases food availability at home. If it’s paid every two months, then it increases expenditures on durable goods such as cell phones and bicycles.
How do you weigh the tradeoffs of two different ways to implement the same program, when both ways have different benefits like you have here?
To assess the trade-offs we need to take into account the primary goals of the program and the implementation costs. Given that the primary goal of the program is to reduce poverty, the monthly pension seems to be more effective. Disbursing the pension every month, however, may be more costly than disbursing it every two months. Governance plays a crucial role in finding ways to effectively and efficiently disburse the pension. Different disbursement mechanisms such as cash or debit cards may be possible in order to decrease implementation costs while maximizing the benefit to recipients.
Good governance should ensure that no group is marginalized in social policy. What practices or behaviors are needed to create equity in these types of pension policies?
Marginalization, like poverty, is a multidimensional problem. Therefore, the first step is to clearly determine the aim of the program. From that point, we can determine the outcomes that will indicate whether the policy is successful. In this case, good governance entails tackling barriers for the most vulnerable population to receive the pension. Some practices include understanding the effects in the difference of frequency of payment, and whether disbursing the pension in cash or using debit cards is more effective. I consider it very important to evaluate the effects of a public policy program during its initial stages of implementation- allowing if possible for random assignment to treatment and control groups- and to have a very solid strategy to overcome barriers that lower-income and illiterate persons may face in receiving public programs.
What can we learn from your research of pension payments that can be applied to other programs or places?
The most important lesson is that even if two policies are identical in the population they serve and the total benefit they provide, small implementation differences such as frequency of payment distribution can cause the program to have greatly differing effects.
Where are you looking to take this research next?
We are analyzing next the pros and cons of disbursing the pension with cash or debit cards and how to overcome barriers for the illiterate population in using debit cards. While using debit cards could reduce the cost of the program and make more frequent disbursements possible, it could also create barriers to usage for certain persons. On the other hand, cash disbursements may provide the most benefit to recipients, but create the risk of corruption. It will be important to look at this aspect of implementation to better understand the cost benefits of the program.