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Incentive Schemes to Delay Retirement and the Equilibrium Interplay with Human Capital Investment

Author

Listed:
  • Khaskhoussi Fouad

    () (GAINS-TEPP)

  • Langot Francois

    () (GAINS-TEPP, ERMES , PSE, Cepremap and IZA)

  • Khaskhoussi Tarek

    () (GAINS-TEPP)

  • Cheron Arnaud

    () (GAINS-TEPP and EDHEC)

Abstract

This article introduces the role of labor demand of the elderly in the analysis of retirement decisions. We integrate both human capital formation and up-dating costs on older workers' job and explore how Social Security system affects human capital investment and retirement decisions. We show that, from the worker''s point of view, human capital investment and retirement age decisions are interdependent and positively related. On the one hand, an actuarially unfair pay-as-you-go system imposes a tax on postponed retirement which encourages early retirement, thus reducing incentives to invest in human capital. On the other hand, the pension system imposes a tax on training intensity. As a result, workers have less incentives to continue working. From the firm''s point of view, this implies an indirect tax on labor demand due to the decrease in older workers'' productivity. We then examine the pattern of the optimal policies according to flexibility versus rigidity of wages.

Suggested Citation

  • Khaskhoussi Fouad & Langot Francois & Khaskhoussi Tarek & Cheron Arnaud, 2009. "Incentive Schemes to Delay Retirement and the Equilibrium Interplay with Human Capital Investment," Economics Bulletin, AccessEcon, vol. 29(1), pages 221-229.
  • Handle: RePEc:ebl:ecbull:eb-08h30004
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I1-P23.pdf
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    Cited by:

    1. Fouad Khaskhoussi, 2009. "Job-Search Effort, Retirement Decision and Pension Reform: A Wage Bargaining Investigation," Economics Bulletin, AccessEcon, vol. 29(2), pages 1255-1263.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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