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Living Standards in an Aging Germany: The Benefits of Reforms and the Costs of Resistance

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  • Axel Börsch-Supan

    ()
    (University of Mannheim)

  • Alexander Ludwig

    ()
    (University of Mannheim)

Abstract

The extent of the demographic change in Europe and especially Germany is dramatic and will deeply affect future labor, financial and goods markets. The expected strain on public budgets and especially social security has received prominent attention, but aging poses many other economic challenges that threaten growth and living standards if they remain unaddressed. This paper investigates the potential benefits of pension and labor market reform for growth and living standards, taking into account behavioral reactions to specific reforms. Which behavioral reactions will strengthen, which will weaken reform policies? While Germany has a large unfunded pension system and vulnerable labor markets, Germans show remarkable resistance against pension and labor market reform. Can Germanymaintain its standard of living even if behavioral reactions offset some of the current reform efforts? The paper uses a novel modeling approach to distinguish between exogenous and endogenous components of labor supply in order to shed light on these questions.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 229 (2009)
Issue (Month): 2-3 (June)
Pages: 163-179

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Handle: RePEc:jns:jbstat:v:229:y:2009:i:2-3:p:163-179

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Related research

Keywords: Aging; pension reform; labor market reform; labor supply reactions;

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References

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  1. Ludwig, Alexander, 2007. "The Gauss-Seidel-quasi-Newton method: A hybrid algorithm for solving dynamic economic models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1610-1632, May.
  2. Jeremy Greenwood & Guillaume Vandenbroucke, 2005. "Hours Worked: Long-Run Trends," NBER Working Papers 11629, National Bureau of Economic Research, Inc.
  3. Martin Floden & David Domeij, 2004. "Population Aging and International Capital Flows," 2004 Meeting Papers 490, Society for Economic Dynamics.
  4. Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2008. "Taxation, aggregates and the household," Working Papers 660, Federal Reserve Bank of Minneapolis.
  5. Alexander Ludwig & Dirk Krüger, 2006. "On the Consequences of Demographic Change for Rates of Returns to Capital, and the Distribution of Wealth and Welfare," MEA discussion paper series 06103, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  6. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows," CEPR Discussion Papers 3986, C.E.P.R. Discussion Papers.
  7. Gürtzgen, Nicole & Feil, Michael & Boeters, Stefan, 2004. "Discrete Working Time Choice in an Applied General Equilibrium Model," ZEW Discussion Papers 04-20, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Attanasio, Orazio & Kitao, Sagiri & Violante, Giovanni L., 2007. "Global demographic trends and social security reform," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 144-198, January.
  9. Attanasio Orazio P. & Kitao Sagiri & Violante Giovanni L., 2006. "Quantifying the Effects of the Demographic Transition in Developing Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-44, April.
  10. Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983. "The Efficiency Gains from Dynamic Tax Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February.
  11. Christian Jaag & Christian Keuschnigg & Mirela Keuschnigg, 2007. "Pension Reform, Retirement and Life-Cycle Unemployment," University of St. Gallen Department of Economics working paper series 2007 2007-43, Department of Economics, University of St. Gallen.
  12. Jeffrey R. Brown & Jeffrey B. Liebman & David A. Wise, 2009. "Social Security Policy in a Changing Environment," NBER Books, National Bureau of Economic Research, Inc, number brow08-1.
  13. Laurence J. Kotlikoff & David A. Wise, 1989. "Employee Retirement and a Firm's Pension Plan," NBER Working Papers 2323, National Bureau of Economic Research, Inc.
  14. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
  15. Alexander Ludwig & Dirk Krüger & Axel Börsch-Supan, 2009. "Demographic Change, Relative Factor Prices, International Capital Flows, and Their Differential Effects on the Welfare of Generations," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 385-414 National Bureau of Economic Research, Inc.
  16. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
  17. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
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