The Effects of Pension Reform on Retirement and Human Capital Formation
AbstractThe demographic transition in industrialized countries poses challenges to the pension system which is essentially organized according to the pay-as-you-go principle in most countries. This paper aims at analyzing two proposals for pension reform in a theoretical model that endogenously explains the retirement and training decision of workers who are heterogeneous in ability. Because the economic benefits of motivating late retirement strongly depend on the employment prospects of workers near retirement age, the model includes the firms' employment decision at the extensive margin. The first reform proposal, the implementation of individual retirement accounts, increases the workers' incentives to acquire skills and to postpone retirement. However, if the capital funded pillar of the pension system becomes strong, low-ability workers may not attain their optimal retirement age because firms refuse to employ them any longer. In a similar manner, the second reform proposal to increase the minimum retirement age may not work for lowability workers if their separation date is determined by the firms before the minimum retirement age is achieved.
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Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-03.
Length: 47 pages
Date of creation: Jan 2007
Date of revision:
Pension Reform; Endogenous Retirement; Human Capital Formation; Tax-Benefit Link; Individual Retirement Accounts; Minimum Retirement Age;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- 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
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-LAB-2007-03-31 (Labour Economics)
- NEP-PBE-2007-03-31 (Public Economics)
You can help add them by filling out this form.
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