The influence of unemployment insurance rules on employment effects of pension reforms

This paper examines how unemployment insurance rules influence the employment effects of pension reforms prior to retirement. We develop a job-search model with a finite horizon introducing age-specific unemployment insurance rules and endogenous separations. The latter result from the employer's decision to offer a mutually agreed termination after an adverse productivity shock and from the worker's choice to accept the offer. We estimate the structural parameters of the model using French data on quarterly job separation and finding rates for workers aged 55-59 years. The model fits the data at more than 99%. It allows to reproduce the observed peak in employment outflows when the distance to the legal retirement age equals the potential benefit duration of the UI system. We demonstrate that combining an increase in the retirement age with a reduction in the generosity of the unemployment insurance scheme is an efficient policy for raising older workers' employment rates. We also put forward that the horizon effect, i.e. the positive effect of a rise in the legal retirement age on employment prior to retirement, is greater when the job-search requirements are low or when the potential benefit duration is high.