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Age Before Beauty? Productivity and Work vs. Seniority and Early Retirement

Author

Listed:
  • Giovanni Mastrobuoni

    () (Collegio Carlo Alberto, CeRP and Netspar)

  • Filippo Taddei

    () (Collegio Carlo Alberto and CeRP)

Abstract

We show how the age pro le of earnings, retirement rules and retirement behavior are tightly linked through the general equilibrium of the economy. Generous Social Security bene ts nanced by large Social Security taxes discourage human capital accumulation. In Social Security systems where Social Security bene ts prioritize redistribution less productive workers with lower levels of human capital tend to retire earlier. These out ows of workers from the labor force tend to generate wage pro les that are monotonically increasing over age and labor markets that display larger seniority premia. This paper theoretically rationalizes the links between retirement rules and the wage structures over the life cycle and uses data on European countries to show how social security taxes, the age pro le of earnings, and retirement behavior are related.

Suggested Citation

  • Giovanni Mastrobuoni & Filippo Taddei, 2011. "Age Before Beauty? Productivity and Work vs. Seniority and Early Retirement," CeRP Working Papers 120, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  • Handle: RePEc:crp:wpaper:120
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    File URL: http://fileserver.carloalberto.org/cerp/WP_120.pdf
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    References listed on IDEAS

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    1. Conde-Ruiz, J. Ignacio & Galasso, Vincenzo, 2004. "The macroeconomics of early retirement," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1849-1869, August.
    2. Robert Fenge, 2008. "Galasso, V.: The Political Future of Social Security in Aging Societies," Journal of Economics, Springer, vol. 94(1), pages 94-99, June.
    3. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
    4. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    5. Kredler, Matthias, 2008. "Experience vs. Obsolescence: A Vintage-Human-Capital Model," MPRA Paper 10200, University Library of Munich, Germany.
    6. J. Ignacio Conde-Ruiz & Vincenzo Galasso & Paola Profeta, "undated". "The Evolution of Retirement," Working Papers 2005-03, FEDEA.
    7. Vincenzo Galasso, 2008. "The Political Future of Social Security in Aging Societies," MIT Press Books, The MIT Press, edition 1, volume 1, number 026257246x, January.
    8. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
    9. J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2003. "Early Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 12-36, January.
    10. Gordon L. Clark, 2008. "The Political Future of Social Security in Aging Societies. By VINCENZO GALASSO," Economica, London School of Economics and Political Science, vol. 75(297), pages 190-191, February.
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    Cited by:

    1. Chia Ngee Choon & Albert Tsui, 2013. "Adequacy of Singapore's Central Provident Fund Payouts: Income Replacement Rates of Entrant Workers," SCAPE Policy Research Working Paper Series 1302, National University of Singapore, Department of Economics, SCAPE.
    2. International Monetary Fund, 2012. "Belgium; Selected Issues Paper," IMF Staff Country Reports 12/56, International Monetary Fund.

    More about this item

    Keywords

    Social Security tax; early retirement; age pro le of earnings; human capital; seniority premium;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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