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Flexible or mandatory retirement? Welfare implications of retirement policies for a population with heterogeneous health conditions

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  • Feng, Zhenhua
  • Lien, Jaimie W.
  • Zheng, Jie

Abstract

A flexible retirement policy has often been proposed as a solution to address the social dilemma of individuals in the population having different desired retirement ages. We analyze such a policy in an overlapping generations general equilibrium framework, where individuals differ in terms of their health condition at the standard retirement age, and therefore in their suitability for remaining in the labor force beyond the standard age. In our model, workers know about their future health condition when they are young, and adjust their savings and labor supply accordingly in order to maximize their lifetime utility. The applies to situations in which workers can fairly accurately predict their health status based upon personal, family, community and professional health status tendencies. We compare the flexible retirement policy to the mandatory retirement policy in the labor and capital markets, and the effects on savings and wages in the aggregate for both healthy and unhealthy, young and elderly cohorts. For economies with sufficiently high capital intensity of production and high levels health among the elderly, a flexible retirement policy can result in a welfare reduction compared to a mandatory retirement policy. Our study links the social desirability of the two retirement policies to the technological and population structure of the economy.

Suggested Citation

  • Feng, Zhenhua & Lien, Jaimie W. & Zheng, Jie, 2020. "Flexible or mandatory retirement? Welfare implications of retirement policies for a population with heterogeneous health conditions," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1032-1055.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:1032-1055
    DOI: 10.1016/j.iref.2018.12.011
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    Cited by:

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    2. Yan Wu & Changsheng Xu & Ming Yi, 2022. "The Optimal Choice of Delayed Retirement Policy in China," Sustainability, MDPI, vol. 14(19), pages 1-21, October.

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    More about this item

    Keywords

    Retirement policy; Welfare economics; Overlapping generations; Demographic trends; Health;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • I1 - Health, Education, and Welfare - - Health
    • J1 - Labor and Demographic Economics - - Demographic Economics

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