The Low Employment Rate Conundrum. Can More Human Capital Help ?
AbstractMany EU countries are confronted with low employment rates, particularly among elderly workers. At the same time, levels of human capital are on the rise. Should this lift the age of retirement and lead to higher lifetime employment rates ? In order to explore these issues, we develop a simple model with endogenous retirement. It tells us that the impact of education on retirement is ambiguous. Higher wages encourage educated workers to postpone retirement (foregone effect). But higher wages allow faster wealth accumulation (income effect) which could favour early retirement. There is also that better educated individuals tend to be older when tehy enter the labour market. The general prediction is thus that, over their lifecycle, more educated individuals should not necessarily spend more years in employment. The econometric analysis of representative samples of 50+ males and females across various EU countries shows that educated individuals systematically retire later, suggesting that the foregone earnings effect dominates the income effect. Yet, the same data reveal that more educated individuals do not have higher lifetime employment rates. The benefit in terms of later retirement is not sufficient to offset later labour market entrance.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005053.
Date of creation: 01 Nov 2005
Date of revision:
Endogenous retirement; Human Capital; employment rate;
Find related papers by JEL classification:
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
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