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Public Pensions, Changing Employment Patterns, and the Impact of Pension Reforms across Birth Cohorts: A Microsimulation Analysis for Germany

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  • Johannes Geyer
  • Viktor Steiner

Abstract

We analyze the impact of changing employment patterns and pension reforms on the future level of public pensions across birth cohorts in Germany. The analysis is based on a rich dataset that combines household survey data from the German Socio-Economic Panel Study (SOEP) and process-produced microdata from the German pension insurance. A microsimulation model is developed which accounts for cohort effects in individual employment and unemployment and earnings over the lifecycle as well as the differential impact of recent pension reforms. Cohort effects for individuals born between 1937 and 1971 vary greatly by region, gender and education and strongly affect lifecycle wage profiles. The largest effects can be observed for younger cohorts in East Germany and for the low educated. Using simulated life cycle employment and income profiles, we project gross future pensions across cohorts taking into account changing demographics and recent pension reforms. Simulations show that pension levels for East German men and women will fall dramatically among younger birth cohorts, not only because of policy reforms but due to higher cumulated unemployment. For West German men, the small reduction of average pension levels among younger birth cohorts is mainly driven by the impact of pension reforms, while future pension levels of West German women are increasing or stable due to rising labor market participation of younger birth cohorts.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 984.

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Length: 45 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp984

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Keywords: Public pensions; cohort effects; microsimulation;

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References

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  1. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 1999. "Explaining the wealth holdings of different cohorts : productivity growth and social security," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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  4. Bernd Fitzenberger & Reinhold Schnabel & Gaby Wunderlich, 2004. "The gender gap in labor market participation and employment: A cohort analysis for West Germany," Journal of Population Economics, Springer, vol. 17(1), pages 83-116, February.
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  7. Stefan Krenz & Wolfgang Nagl & Joachim Ragnitz, 2009. "Is There a Growing Risk of Old-Age Poverty in East Germany?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 60(Supplemen), pages 35-54.
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  10. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  11. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
  12. Anika Rasner & Ralf K. Himmelreicher & Markus M. Grabka & Joachim R. Frick, 2007. "Best of Both Worlds: Preparatory Steps in Matching Survey Data with Administrative Pension Records ; The Case of the German Socio-Economic Panel and the Scientific Use File Completed Insurance Biograp," SOEPpapers on Multidisciplinary Panel Data Research 70, DIW Berlin, The German Socio-Economic Panel (SOEP).
  13. David J. McKenzie, 2006. "Disentangling Age, Cohort and Time Effects in the Additive Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 473-495, 08.
  14. Ralf K. Himmelreicher & Michael Stegmann, 2008. "European Data Watch: New possibilities for socio-economic research through longitudinal data from the Research Data Center of the Federal German Pension Insurance (FDZ-RV)," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(4), pages 647-660.
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Cited by:
  1. Johannes Geyer & Viktor Steiner, 2011. "Future pensions and changes in earning histories—a microsimulation analysis for Germany," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 28.
  2. Potrafke, Niklas, 2012. "Unemployment, human capital depreciation and pension benefits: An empirical evaluation of German data," Munich Reprints in Economics 19271, University of Munich, Department of Economics.
  3. Johannes Geyer, 2011. "The Effect of Health and Employment Risks on Precautionary Savings," SOEPpapers on Multidisciplinary Panel Data Research 408, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Christian Westermeier & Anika Rasner & Markus M. Grabka, 2012. "The Prospects of the Baby Boomers: Methodological Challenges in Projecting the Lives of an Aging Cohort," SOEPpapers on Multidisciplinary Panel Data Research 440, DIW Berlin, The German Socio-Economic Panel (SOEP).

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