The effect of an increase in minimum wage on the contribution, pension expenses and the cash balance of Iranian Social Security Organization

Authors
Abbas khandan
Peyman Ghasri
Faculty of Economics, Kharazmi University
Abstract
Sustainability of pension funds indicating the balance between contributions and pension expenses, is one of the fundamental principles governing social security systems. Among the things that affect the contributions and pension expenses of the Iran’s Social Security Organization (ISSO)’s fund is the minimum wage which according to Article 41 of Iran’s labor and social security laws, is determined annually by the Iran’s supreme labor council and, every year, becomes a controversial and disputed issue between labor :union:s, employers and the public authorities. An increase in minimum wage have effects on both the received contributions and pension expenses and, as a result, its final effect on the cash balance of ISSO’s fund has been arguable. Considering the issue importance, this paper studies the effect of an increase in minimum wage on ISSO’s contributions, pension expenses and its cash balance during 1961 to 2022 using an econometric time series model of autoregressive distributed lags (ARDL). The results show that a 10% increase in the minimum wage will increase ISSO’s contributions by 25.6% and its pension expenses by 23%. Therefore, comparing the effects, it can be stated that the ISSO’s cash balance would be increased by 2.6% as a results of a 10% increase in minimum wage. To test the result, one more time, the association between an increase in minimum wage and the ISSO’s excess resources was investigated separately. The results once again confirm that the ISSO cash balance would be improved by 3.3% in association with a 10% increase in minimum wage. In this study, it was also shown that the population of contributors, the population of pensioners, the population support ratio, GDP and dummy variables of sanction and Iran-Iraq war have been influential as well.
Keywords
Minimum Wage
Cash balance
Contributions
Pension expenses
Iranian Social Security Organization
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