Youth Unemployment and Retirement of the Elderly: The Case of Italy
In: Social Security Programs and Retirement around the World: The Relationship to Youth Employment
This paper shows that the �lump of labor� assumption fails in Italy. The direct relationship between the unemployment rate of the young and the labor force participation of the old is pro-cyclical, i.e. a higher labor force participation of the old is related to a lower unemployment rate of the young. Hence both vary with the business cycle. In order to overcome endogeneity problems in explaining unemployment of the young, we resort to a simulated variable: �the inducement to retire�, which is constructed by simulating the social security benefits. We related the unemployment rate of the young to this incentive measure and find that a higher inducement to retire is associated to a higher unemployment rate � quite the opposite of the �young-in-old-out� story.
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