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The Benefits of Separating Early Retirees from the Unemployed: Simulation Results for Belgian Wage Earners

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  • Desmet, Raphael
  • Jousten, Alain
  • Perelman, Sergio

Abstract

The pool of early retirees is characterized by a large heterogeneity along several criteria. The present paper focuses on the key distinction between those in forced early retirement and those who retire early by individual choice. We start by estimating a retirement probit model for older workers in Belgium. Based on these estimates, we then perform micro-simulations relating to a hypothetical actuarial reform of a pension system, i.e., a reform imposing on average actuarial neutrality with respect to the time of retirement. We explore two scenarios, one where the entire population is subjected to the actuarial system, and one where a duly screened sub-sample of the unemployed is shielded against these actuarial adjustment factors, a group we call the truly unemployed. We evaluate the impact on the average retirement age, the pension budgets as well as indicators of redistribution within the group of the elderly. We find that the extra budgetary gain of exposing this subgroup to the full-blown reform is modest, while the distributional cost is rather high. Our results thus comfort the idea that the budgetary cost of a focused unemployment system are moderate, and that returning the unemployment insurance to its primary role might be a desirable strategy.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5077.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5077

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Keywords: inequality; older worker; retirement;

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  1. Brooks,Robin & Razin,Assaf (ed.), 2005. "Social Security Reform," Cambridge Books, Cambridge University Press, number 9780521844956, April.
  2. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  3. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
  4. Raphael Desmet & Alain Jousten & Sergio Perelman & Pierre Pestieau, 2003. "Micro-Simulation of Social Security Reforms in Belgium," NBER Working Papers 9494, National Bureau of Economic Research, Inc.
  5. Arnaud Dellis & Raphaël Desmet & Alain Jousten & Sergio Perelman, 2004. "Micro-Modeling of Retirement in Belgium," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 41-98 National Bureau of Economic Research, Inc.
  6. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Pierre Pestieau & Jean-Philippe Stijns, 1999. "Social Security and Retirement in Belgium," NBER Chapters, in: Social Security and Retirement around the World, pages 37-71 National Bureau of Economic Research, Inc.
  8. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
  10. Bound, John, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Reply," American Economic Review, American Economic Association, vol. 81(5), pages 1427-34, December.
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Cited by:
  1. Maes, Marjan, 2008. "Does the dismantlement of early retirement schemes increase unemployment in Belgium?," Working Papers 2008/57, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  2. Marjan, MAES, 2008. "Poverty persistence among Belgian elderly in the transition from work to retirement : an empirical analysis," Discussion Papers (ECON - Département des Sciences Economiques) 2008042, Université catholique de Louvain, Département des Sciences Economiques.
  3. Maes, Marjan, 2008. "poverty persistence among belgian elderly: true or spurious?," Working Papers 2008/10, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  4. Bellmann, Lutz & Janik, Florian, 2007. "Firms and Early Retirement: Offers That One Does Not Refuse," IZA Discussion Papers 2931, Institute for the Study of Labor (IZA).
  5. Dorn, David & Sousa-Poza, Alfonso, 2007. "'Voluntary' and 'Involuntary' Early Retirement: An International Analysis," IZA Discussion Papers 2714, Institute for the Study of Labor (IZA).

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