Increasing the Legal Retirement Age: The Impact on Wages, Worker Flows and Firm Performance

31 Pages Posted: 1 Jun 2009

See all articles by Pedro S. Martins

Pedro S. Martins

Queen Mary University of London; IZA Institute of Labor Economics; Global Labor Organization (GLO); New University of Lisbon

Álvaro A. Novo

Bank of Portugal; ISEGI, Universidade Nova de Lisboa

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Abstract

Many pay-as-you-go pension systems have increased or plan to increase their legal retirement age (LRA) to address the financial consequences of ageing. Although the success of these policies is ultimately determined at the labour market, little is known about the effects of higher LRAs at the firm level. Here, we identify this effect by considering a legislative reform introduced in Portugal in 1994: women's LRA was gradually increased from 62 to 65 years while men's LRA stayed unchanged at 65. Using detailed matched employer-employee panel data and difference-in-differences matching methods, we analyse the effects of the reform in terms of a number of worker- and firm-level outcomes. After providing evidence of compliance with the law, we find that the wages and hours worked of older women (those required to work longer) were virtually unchanged. However, firms employing older female workers significantly reduced their hirings, especially of younger female workers. Those firms also lowered their output although not their output per worker.

Keywords: social security reform, older workers, matching estimators

JEL Classification: J14, J26, J63

Suggested Citation

Martins, Pedro S. and Novo, Alvaro A. and Portugal, Pedro, Increasing the Legal Retirement Age: The Impact on Wages, Worker Flows and Firm Performance. IZA Discussion Paper No. 4187, Available at SSRN: https://ssrn.com/abstract=1412265

Pedro S. Martins (Contact Author)

Queen Mary University of London ( email )

Mile End Road
London, E1 4NS
United Kingdom

HOME PAGE: http://sites.google.com/site/pmrsmartins/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

New University of Lisbon

Lisbon, 1099-085
Portugal

Alvaro A. Novo

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

ISEGI, Universidade Nova de Lisboa

1099-085 Lisboa, 1099-085
Portugal

Pedro Portugal

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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