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

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Author Info

  • Desmet, Raphaël

    ()
    (Federal Planning Bureau, Belgium)

  • Jousten, Alain

    ()
    (University of Liège)

  • Perelman, Sergio

    ()
    (CREPP, Université de Liège)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1571.

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Length: 26 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1571

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Keywords: retirement; older worker; inequality;

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References

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  1. Pierre Pestieau & Jean-Philippe Stijns, 1999. "Social Security and Retirement in Belgium," NBER Chapters, National Bureau of Economic Research, Inc, in: Social Security and Retirement around the World, pages 37-71 National Bureau of Economic Research, Inc.
  2. Desmet, Raphaël & Jousten, Alain & Perelman, Sergio & Pestieau, Pierre, 2003. "Micro-Simulation of Social Security Reforms in Belgium," IZA Discussion Papers 735, Institute for the Study of Labor (IZA).
  3. Arnaud Dellis & Raphaël Desmet & Alain Jousten & Sergio Perelman, 2004. "Micro-Modeling of Retirement in Belgium," NBER Chapters, National Bureau of Economic Research, Inc, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 41-98 National Bureau of Economic Research, Inc.
  4. John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
  5. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Brooks,Robin & Razin,Assaf (ed.), 2005. "Social Security Reform," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521844956.
  7. Bound, John, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1427-34, December.
  8. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 88(1), pages 25-50.
  9. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers, OECD Publishing 202, OECD Publishing.
  10. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 296, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Maes, Marjan, 2008. "Poverty persistence among Belgian elderly: true or spurious?," ISER Working Paper Series 2008-24, Institute for Social and Economic Research.
  2. 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).
  3. Marjan, MAES, 2008. "Does the dismantlement of early retirement schemes increase unemployment in Belgium ?," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2008041, Université catholique de Louvain, Département des Sciences Economiques.
  4. 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), Université catholique de Louvain, Département des Sciences Economiques 2008042, Université catholique de Louvain, Département des Sciences Economiques.
  5. 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).

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