Modelling and forecasting the social contributions to the Swiss Old Age and Survivor Insurance scheme

This article presents a microeconometric model of the social contributions collected by the Swiss Old Age and Survivors Insurance scheme (AHV-AVS), as well as an application to the evaluation of the amount of contributions for the period 1995-2040. The model is made up of three main components. The first component relates to the demography of Switzerland. It is partially based on the assumptions underlying the demographic scenarios of the Swiss Federal Statistical Office, but integrates them in a more general approach allowing for greater flexibility. The second component is the most innovative part of our model. It is based on a transition probability model between different states in the labour market. These transition probabilities depend solely on the age and the gender of individuals. We estimated them econometrically, using the data of the Swiss Labour Force Survey. The states are those relevant for the computation of social security contributions and pension entitlements, namely: wage earner, self-employed, unemployed and non-working. The third component of the model describes the earnings distribution of contributors. Knowing the size of the populations of contributors, derived from the demographic and labour market transition models, this last component of the model enables us to assess the future potential contributions collected by the AHV/AVS. We estimated the parameters of these theoretical distributions of labour income by dividing the contributors according to their occupation, age and gender. This allows us to compute the social contribution to AHV/AVS by applying, to the different types of incomes (wage income, self-employed income, unemployment benefits), the relevant contribution rates. Finally, we add up these contributions to evaluate the annual amount of contributions to the AHV/AVS for the period 1995-2040.