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Increasing the Legal Retirement Age: The Impact on Wages, Worker Flows and Firm Performance

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Author Info

  • Martins, Pedro S.

    () (Queen Mary, University of London)

  • Novo, Alvaro A.

    () (Banco de Portugal)

  • Portugal, Pedro

    () (Banco de Portugal)

Abstract

Many pay-as-you-go pension systems have increased or plan to increase their legal retirement age (LRA) to address the financial consequences of ageing. Although the success of these policies is ultimately determined at the labour market, little is known about the effects of higher LRAs at the firm level. Here, we identify this effect by considering a legislative reform introduced in Portugal in 1994: women's LRA was gradually increased from 62 to 65 years while men's LRA stayed unchanged at 65. Using detailed matched employer-employee panel data and difference-in-differences matching methods, we analyse the effects of the reform in terms of a number of worker- and firm-level outcomes. After providing evidence of compliance with the law, we find that the wages and hours worked of older women (those required to work longer) were virtually unchanged. However, firms employing older female workers significantly reduced their hirings, especially of younger female workers. Those firms also lowered their output although not their output per worker.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4187.

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Length: 31 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4187

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Keywords: social security reform; older workers; matching estimators;

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References

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  1. Costas Meghir & Whitehouse, E, 1995. "Labour market transitions and retirement of men in the UK," IFS Working Papers W95/10, Institute for Fiscal Studies.
  2. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  3. Gary Burtless & Joseph F. Quinn, 2002. "Is Working Longer the Answer for an Aging Workforce?," Issues in Brief ib2002-11, Center for Retirement Research, revised Dec 2002.
  4. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 15-39, Spring.
  5. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  6. Barbara Sianesi, 2004. "An Evaluation of the Swedish System of Active Labor Market Programs in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 133-155, February.
  7. Orley Ashenfelter & David Card, 2002. "Did the Elimination of Mandatory Retirement Affect Faculty Retirement?," American Economic Review, American Economic Association, vol. 92(4), pages 957-980, September.
  8. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
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Citations

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Cited by:
  1. Machado, C. Sofia & Portela, Miguel, 2012. "Hours of Work and Retirement Behavior," IZA Discussion Papers 6270, Institute for the Study of Labor (IZA).
  2. Pedro Martins & Jim Jin, 2010. "Firm-level social returns to education," Journal of Population Economics, Springer, vol. 23(2), pages 539-558, March.
  3. Ilmakunnas, Pekka & Ilmakunnas, Seija, 2011. "Hiring older employees: Do incentives of early retirement channels matter?," MPRA Paper 30885, University Library of Munich, Germany.
  4. Michela Bia & Roberto Leombruni & Pierre-Jean Messe, 2009. "Young in-Old out: a new evaluation based on Generalized Propensity Score," LABORatorio R. Revelli Working Papers Series 93, LABORatorio R. Revelli, Centre for Employment Studies.
  5. Michela Bia & Pierre-Jean Messe & Roberto Leombruni, 2010. "Young-in Old-out: a new evaluation," Papers 2010-14, TEPP Working Papers.
  6. Paula C. Albuquerque & João C. Lopes, 2010. "Economic Impacts of Ageing: An Interindustry Approach," Working Papers 2010/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  7. Pedro Portugal & Álvaro A. Novo & Pedro Martins, 2007. "The Economic Impact of Rising the Retirement Age: Lessons From the September 1993 Law," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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