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Legislation Publications Pension models About project Statistics

1. Introduction

2. Fundamentals of Moldova’s Pension Legislation
2.1. General Principles
2.2. Insurance Contributions and the Tax Base
2.3. Types of Pensions and Terms and Conditions of Their Assignment
2.3.1. Old-age Pensions
2.3.2. Invalidity Pensions
2.3.3. Survivor’s Pensions
2.3.4. Pensions to Specific Categories of Population
2.3.5. Social Pensions/Benefits
2.3.6. Pensions Paid at the Account of the State Budget
2.4. The Minimal Pension and Guaranteed Minimum
2.5. Pension Indexing

3. The Present-Day Demographic Setting
3.1. General Population Changes
3.2. Fertility
3.3. Mortality and Life Expectancy
3.4. Population Growth and Migration
3.5. The Base Demographic Forecast

4. Demographic Trends in the Economic Activity of the Population
4.1. Demographic Factors Affecting the Number of Population at the Economically Active Age
4.2. The Profiles and Dynamics of the Economic Activity of the Population
4.3. Projection Scenarios for the Economic Activity of the Population

5. General Employment Issues

6. Payers of Pension Contributions
6.1. The Profile and Number of Pension Contribution Payers
6.2. Projection Scenarios for Insurance Contribution Payers

7. Recipients of Pensions/Benefits
7.1. Profile of Pension Recipients
7.2. Old-Age Pensioners
7.3. Invalidity Pensioners
7.4. Recipients of Pensions for Survivors
7.5. Recipients of Social Pensions/Benefits
7.6. Forecast of Pensioner Numbers

8. Present-Day Macroeconomic Environment
8.1. Historical Background
8.2. Base Macroeconomic Forecast

9. Software Complex
9.1. Mission and Structure of the Software
9.2. Computation Scenario Block
9.3. Demography Block
9.4. Macroeconomics Block
9.5. Receipts Block (Calculation of Contributions)
9.6. Expenditure Block
9.7. Output and Reports

10. Approbation of the Model
10.1. Modelling Scenarios
10.2. Simulation Output
10.3. Computations on the Pension Calculator

Annex 1. Base scenario




Development of the Analytical Model of the Republic of Moldova’s Pension System

4.2.   The Profiles and Dynamics of the Economic Activity of the Population

In many countries, profiles of the economic activity of population by age groups have the form of a U-shaped curve (see Figure 4.3), with such a curve being rather unreceptive to the socio-economic and demographic peculiarities of a given country. Country-specific differences are largely observed in the younger and older age groups, with average indicators of economic activity depending on the number of persons in those groups and on the degree of their activity. Let us note here that developing countries usually show a smoother profile of economic activity by age, because these countries’ younger people tend to combine education and work, whereas senior persons tend to continue working [after reaching retirement age] due to a limited coverage of the population by national retirement benefit systems.

However, if we consider the economic activity profiles for the Republic of Moldova separately for men and women, we will notice that the economic activity profile for men is different from the traditional one. Instead, it resembles a W-shaped curve turned up an upside down (see Figure 4.4). According to international experience, such types of profiles are only characteristic of women in developed industrial countries. This is accounted for by the fact that young women in such countries are more often preoccupied with their career growth, which gives them a certain degree of economic independence. In this regard, children do not seem to contribute to this goal, and having children is usually delayed until an older age. After 30, when a certain degree of material well-being has been achieved and children have been born, the degree of their economic activity begins to decrease. Further rise in women’s economic activity occurs when the children grow older and become more mature.

Fig. 4.3. Participation in the labor force, by age: 2000 – 2003

Certainly, the decrease in the degree of economic activity of middle-aged men, which was noted above, is accounted for by other reasons which need a more painstaking analysis, presumably outside the scope of this paper. Therefore, we will briefly touch upon some of the characteristics of this phenomenon which is mainly caused by illegal external labor migration. A seen from the charts shown in Figure 4.3, the economic activity of the middle-aged population has been decreasing at a faster pace over the past years. According to Figure 4.4, this decrease occurs large due to the decreased economic activity of men residing in rural areas. The seeming inconsistency of this statement with the low unemployment levels in rural areas (see Table 4.1) can be explained by the fact that definitions of employed and unemployed persons used in the Republic of Moldova largely rest on the ILO recommendations adopted by the Resolution of the 13th International Conference on Labor Statistics. According to these recommendations, the term “work” may mean work performed during one hour only, including growing vegetables for sale on private self-supporting homesteads. Clearly, this kind of employment does not always generate incomes sufficient for workers to provide for themselves and their families, whereas it is predominantly working age men who are forced by the gender roles and behavioral stereotypes existing in society to look for jobs in neighboring countries.

Another reason for the changing level of economic activity is connected to the fact that, as in other independent states formerly constituting the USSR, the degree of involvement of the population in the economic activity was very high in the Republic of Moldova in the early 1990s. That situation was brought about by the inertia of the labor market observed since the Soviet times, when due to a combined effect of the politics and ideology of full employment the indicators of the participation of the population in the labor force were higher than in more developed economies. Therefore, it was anticipated at the very beginning of the reforms that the percentage of the population participating in the national economy would drop significantly. The level of economic activity in the Republic of Moldova still continues to decline (see Figure 4.4). For example, it decreased from 61.3% to 46.0%, or by more than 15%, from the first quarter of 1999 till the fourth quarter of 2003, with the most dramatic decrease in economic activity (from 40% to 10%) observed in the younger age groups from 15 to 35 years old.

 

Fig. 4.4. Participation in the labor force, by gender and type of area: 2003

The rates of decrease in the economic activity were not the same for men and women, which was a natural reaction of the labor market to the overinvolvement of the population in the economy in the Soviet period. Unemployment was another reason for the decreased economic activity, as it was pushing the former employed and unemployed alike out of the labor force. In the latter case, we deal with the so-called “desperate” unemployed, the number of which was estimated to fluctuate from 75 to 95 thousand persons during 1999 – 2003.

The consistently high degree of the economic activity of women is largely accounted for by the legacy of the socialist economy and the inertia of the preferences established at that time. Working experience, which a majority of women in active age has, is an advantage in the present conditions as it helps women better adapt to the changing labor market conditions. Apparently, this is one of the reasons why the general level of unemployment in the Republic of Moldova is less among women than it is among men (see Figure 4.5).

Table 4.1: Distribution of the population by the level of economic activity, type of area, and gender, %

 

1999

2000

2001

2002

2003

Level of economic activity

Total

61.3

59.9

57.9

57.2

51.6

Urban

59.7

57.7

55.9

56.2

54.8

Rural

62.6

61.5

59.3

57.9

49.3

Men

66.4

63.9

61.6

60.0

54.5

Women

56.9

56.3

54.6

54.7

49.1

Level of employment

Total

54.5

54.8

53.7

53.3

47.5

Urban

48.3

48.6

48.2

49.4

48.1

Rural

59.2

59.4

57.7

56.2

47.1

Men

57.6

57.7

56.2

55.1

49.3

Women

51.8

52.2

51.4

51.7

46.0

Level of unemployment, ILO standards

Total

11.1

8.5

7.3

6.8

7.9

Urban

19.1

15.7

13.8

12.1

12.2

Rural

5.4

3.4

2.7

3.0

4.5

Men

13.3

9.7

8.7

8.1

9.6

Women

8.9

7.2

5.9

5.5

6.4

 

Fig. 4.5. Economically active, employed, and unemployed population in the Republic of Moldova

It is also important to analyze the distribution of Moldova’s economically active, employed, and unemployed population by urban and rural areas (see Figure 4.5). In 1999 – 2002, the economic activity of rural population was usually higher than that of the urban population, with the exception of the winter months during which the activity of the rural population dropped as a result of seasonal fluctuations. The activity of the rural population began plummeting since the middle of 2002, and by the beginning of 2003 its level decreased by 13 percentage points down to 47%. Notably, the subsequent seasonal rise in the activity of rural population in the summer months was not enough to equalize the levels of activity between the rural and urban population. Another peculiarity of Moldova’s labor market is that, during 1999 – 2003, the level of unemployment for urban population was 2 – 7 times greater than for the rural population.


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