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Voluntary and involuntary retirement decision : does real wage rigidity affects the effectiveness of pension reforms ?

Author

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  • Cheron, Arnaud
  • Khaskhoussi, Fouad
  • Khaskhoussi, Tarek
  • Langot, François

Abstract

In this paper, we integrate the retirement deadline taking into account both labor demand and labor supply specificities. This approach reveals that firms' employment decisions play an active role in the early retirement decision. We show that, in a walrasian economy, social security reforms aimed at delaying the retirement age by introducing actuarially fair adjustments are particularly powerful to stimulate the employment of older workers. However, if real wages are rigid, two situations must be distinguished. First, if the wage is lower than its walrasian value, the separation date is determined by workers, fair adjustments would push back the retirement age. In contrast, when the wage exceeds its walrasian rate, the separation date is determined by firms. Trying to increase the rate of employment of older workers by introducing pension incentives seems to be an unattainable goal. Therefore, there is a good reason for focusing primarily on labor demand. In this case, it appears that paying a subsidy to firms is the best policy for attaining the optimal retirement age.

Suggested Citation

  • Cheron, Arnaud & Khaskhoussi, Fouad & Khaskhoussi, Tarek & Langot, François, 2004. "Voluntary and involuntary retirement decision : does real wage rigidity affects the effectiveness of pension reforms ?," MPRA Paper 9119, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9119
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    References listed on IDEAS

    as
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    2. repec:hal:cesptp:halshs-00754096 is not listed on IDEAS
    3. Langot, François & Moreno-Galbis, Eva, 2013. "Does the growth process discriminate against older workers?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 286-306.
    4. Philippe Michel & Pierre Pestieau, 2000. "Retraite par répartition et âge de la retraite," Revue Économique, Programme National Persée, vol. 51(1), pages 15-30.
    5. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2005. "Inciter à différer le départ en retraite : une analyse en termes de courbe de Laffer," Revue d'économie politique, Dalloz, vol. 115(2), pages 241-263.
    6. Fouad Khaskhoussi & Tarek Khaskhoussi, 2006. "Différer l'âge de départ en retraite les effets du cumul emploi-retraite," Revue d'économie politique, Dalloz, vol. 116(5), pages 717-737.
    7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    8. Antoine d’Autume, 2003. "Vieillissement et choix de l'âge de la retraite. Que peut nous dire le modèle à générations ?," Revue économique, Presses de Sciences-Po, vol. 54(3), pages 561-571.
    9. Kai-Joseph Fleischhauer, 2007. "The Effects of Pension Reform on Retirement and Human Capital Formation," University of St. Gallen Department of Economics working paper series 2007 2007-03, Department of Economics, University of St. Gallen.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Blake, Hélène & Sangnier, Marc, 2011. "Senior activity rate, retirement incentives, and labor relations," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-32.

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    More about this item

    Keywords

    Retirement age; Human capital investment; Real wage rigidity; Labor market reform;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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