Raising retirement age may not increase unemployment among older generations

Andrea Ichino, Guido Schwerdt, Rudolf Winter-Ebmer, Josef Zweimüller, Mon, 10/08/2007



Lower fertility rates and longer life expectancy is leading to an older workforce in most industrialized countries. Worries about the implications for pension systems have led to reforms based on increasing the minimum retirement age, but how realistic is it to keep up the employment prospects of an ageing workforce?The authors of CEPR DP 6510 compare the employment and earnings prospects of older versus prime-age workers in Austria across two groups – workers displaced by a plant closure, and non-displaced workers.

Exploiting a huge dataset of over 1 million people, they find that immediately after displacement, older workers have lower re-employment possibilities than prime-age workers in the same situation, and both have lower possibilities than the corresponding non-displaced groups. However, within five years the employment prospects of the old displaced workers catch up with those of old non-displaced workers, while even after 10 years the displaced prime-age workers still have worse prospects (by about 10 percentage points) than the prime-age non-displaced.

The results are consistent with the view that after a plant closure, older workers are more reluctant to take new jobs with lower pay, perhaps as a result of the better severance packages they receive. As retirement looms, however, the older workers become more inclined to take on lower-paid jobs, which explains the catching up of their employment prospects.The authors’ findings are relevant for the debate on the feasibility of increasing the retirement age to ease the pressure on pensions, as the evidence suggests that increasing the retirement age does not necessarily produce individuals who are ‘too old to work but too young to retire’.

DP6510 Too Old to Work, Too Young to Retire?

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URL:  http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6510.asp

Topics:  Labour markets

Tags:  Aging, Matching, Employability, Plant Closures


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