The unintended effects of universalizing social pensions: Evidence from Mexico

TL;DR

This study evaluates Mexico's 2019 universal social pension reform, revealing increased take-up, no overall poverty reduction, but a rise in extreme poverty due to labor exit among low-income elderly, highlighting trade-offs in universal pension policies.

Contribution

It provides causal evidence on the effects of universalizing social pensions, distinguishing between eligibility expansion and benefit increases using a triple-differences approach.

Findings

Increased pension take-up but no significant poverty reduction.

Rise in extreme poverty among low-income elderly due to labor exit.

Universalization may dilute redistributive effects and alter labor supply.

Abstract

This paper examines the effects of the 2019 universalization of Mexico's Social Pension Program (PAM), one of the country's most expansive and politically salient social programs. The reform simultaneously increased the cash transfer and extended eligibility to all individuals aged 65 and over, regardless of income or contributory pension status. Using nationally representative data from the ENIGH and a triple-differences (DDD) identification strategy, we estimate the causal effect of the universalization on poverty and labor market outcomes. Our empirical approach exploits variation across time (pre- and post-reform), age (eligible vs. ineligible), and pension scheme status (non-contributory vs. contributory), allowing us to separate the effects of expanded eligibility from those of increased benefit levels. We find strong increases in take-up rates and no significant change in overall poverty rates, suggesting that many new beneficiaries were not economically vulnerable. However, we document a surprising increase in extreme poverty, concentrated among low-income elderly who responded to the reform by exiting the labor force. This reduction in labor supply, driven by a significant drop in employment among individuals in the bottom income quartile, suggests that the pension acted as a substitute for labor income rather than a supplement. Taken together, the results highlight the trade-offs inherent in universal pension programs: while broader access reduces administrative exclusion, extending transfers to economically secure individuals may dilute redistributive impacts and generate behavioral responses that offset potential welfare gains.