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Age Before Beauty? Productivity and Work vs. Seniority and Early Retirement

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Author Info

  • Giovanni Mastrobuoni

    ()
    (Collegio Carlo Alberto, CeRP and Netspar)

  • Filippo Taddei

    ()
    (Collegio Carlo Alberto and CeRP)

Abstract

We show how the age pro le of earnings, retirement rules and retirement behavior are tightly linked through the general equilibrium of the economy. Generous Social Security bene ts nanced by large Social Security taxes discourage human capital accumulation. In Social Security systems where Social Security bene ts prioritize redistribution less productive workers with lower levels of human capital tend to retire earlier. These out ows of workers from the labor force tend to generate wage pro les that are monotonically increasing over age and labor markets that display larger seniority premia. This paper theoretically rationalizes the links between retirement rules and the wage structures over the life cycle and uses data on European countries to show how social security taxes, the age pro le of earnings, and retirement behavior are related.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 120.

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Length: 38 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:crp:wpaper:120

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Keywords: Social Security tax; early retirement; age pro le of earnings; human capital; seniority premium;

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  1. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "The Macroeconomics of Early Retirement," CEPR Discussion Papers 3896, C.E.P.R. Discussion Papers.
  2. Kredler, Matthias, 2008. "Experience vs. Obsolescence: A Vintage-Human-Capital Model," MPRA Paper 10200, University Library of Munich, Germany.
  3. Vincenzo Galasso, 2006. "The Political Future of Social Security in Aging Societies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072734.
  4. Conde-Ruiz, José Ignacio & Galasso, Vincenzo & Profeta, Paola, 2005. "The Evolution of Retirement," CEPR Discussion Papers 4863, C.E.P.R. Discussion Papers.
  5. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
  6. Gordon L. Clark, 2008. "The Political Future of Social Security in Aging Societies. By VINCENZO GALASSO," Economica, London School of Economics and Political Science, vol. 75(297), pages 190-191, 02.
  7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  8. Robert Fenge, 2008. "Galasso, V.: The Political Future of Social Security in Aging Societies," Journal of Economics, Springer, vol. 94(1), pages 94-99, 06.
  9. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA.
  10. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  11. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
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