Reform and Backlash to Reform: Economic Effects of Ageing and Retirement Policy

21 Pages Posted: 20 Apr 2016

See all articles by Svend E. Hougaard Jensen

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Ole Hagen Jorgensen

World Bank

Date Written: November 1, 2010

Abstract

Using a stochastic general equilibrium model with overlapping generations, this paper studies (i) the effects on both extensive and intensive labor supply responses to changes in fertility rates, and (ii) the potential of a retirement reform to mitigate the effects of fertility changes on labor supply. In order to neutralize the effects on effective labor supply of a fertility decline, a retirement reform, designed to increase labor supply at the extensive margin, is found to simultaneously reduce labor supply at the intensive margin. This backlash to retirement reform requires the statutory retirement age to increase more than proportionally to fertility changes in order to compensate for endogenous responses of the intensity of labor supply. The robustness of this result is checked against alternative model specifications and calibrations relevant to an economic region such as Europe.

Keywords: Labor Policies, Labor Markets, Pensions & Retirement Systems, Economic Theory & Research, Population Policies

Suggested Citation

Hougaard Jensen, Svend Erik and Jorgensen, Ole Hagen, Reform and Backlash to Reform: Economic Effects of Ageing and Retirement Policy (November 1, 2010). World Bank Policy Research Working Paper No. 5470, Available at SSRN: https://ssrn.com/abstract=1706560

Svend Erik Hougaard Jensen

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Ole Hagen Jorgensen (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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