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Dangerous flexibility – retirement reforms reconsidered

Author

Listed:
  • Axel Börsch-Supan
  • Tabea Bucher-Koenen
  • Vesile Kutlu-Koc
  • Nicolas Goll

Abstract

SUMMARYFlexible retirement is supposed to increase labour supply of older workers without touching the third rail of pension politics, the highly unpopular increase of the retirement age. While this may have intuitive appeal, this paper shows that it might be wishful thinking. Economic theory tells us that flexible retirement policies can have a zero or positive effect on labour force participation (LFP) while the effect on hours worked can be positive or negative depending on the distribution of leisure preferences. Thus, the overall effect is ex ante unclear. Empirical results from nine OECD countries show that the effect on LFP is ex post small and positive while the effect on hours worked is negative. Overall, there is no evidence of the desired positive effect on total labour supply (TLS). We conclude that the flexibility reforms enacted so far are dangerous instruments if one wants to increase TLS because they postpone or even replace the instalment of more effective policies and may, even worse, reduce total labour volume.

Suggested Citation

  • Axel Börsch-Supan & Tabea Bucher-Koenen & Vesile Kutlu-Koc & Nicolas Goll, 2018. "Dangerous flexibility – retirement reforms reconsidered," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 33(94), pages 315-355.
    • Handle: RePEc:oup:ecpoli:v:33:y:2018:i:94:p:315-355.
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    File URL: http://hdl.handle.net/10.1093/epolic/eiy002
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    Citations

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    Cited by:

    1. C.-H. DiMaria, 2019. "Sustainability, welfare and efficiency of nations," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(3), pages 1141-1163, May.
    2. Börsch-Supan, Axel & Härtl, Klaus & Leite, Duarte N., 2018. "Earnings test, non-actuarial adjustments and flexible retirement," Economics Letters, Elsevier, vol. 173(C), pages 78-83.
    3. Cipriani, Giam Pietro & Fioroni, Tamara, 2022. "Social security and endogenous demographic change: child support and retirement policies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 21(3), pages 307-325, July.
    4. Erik Hernæs & Zhiyang Jia & John Piggott & Trond Christian Vigtel, 2020. "Work less but stay longer. Mature worker response to a flexibility reform," Discussion Papers 937, Statistics Norway, Research Department.
    5. Jan C. van Ours, 2022. "How Retirement Affects Mental Health, Cognitive Skills and Mortality; An Overview of Recent Empirical Evidence," De Economist, Springer, vol. 170(3), pages 375-400, August.
    6. Masayuki Okada, 2023. "The optimal earnings test and retirement behavior," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1036-1068, August.
    7. Casas, Pablo & Román, Concepción, 2023. "Early retired or automatized? Evidence from the survey of health, ageing and retirement in Europe," The Journal of the Economics of Ageing, Elsevier, vol. 24(C).

    More about this item

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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