The Macroeconomic Effects of Older Workers' Labor Force Participation: An Estimate for France

This article uses VAR models to evaluate the macroeconomic and fiscal impacts of changes in the labor force participation of older workers (aged 55 to 64) using quarterly data from 1980 to 2022.We find that the elasticity of GDP per capita with respect to the participation rate of older workers is 0.22, while the elasticity of the public budget balance is 0.09. Conversely, a decline in participation leads to a reduction in GDP and a deterioration of the fiscal balance, with effects larger in magnitude than those resulting from an increase. We also show that rising participation among older workers is accompanied by an increase in the participation of younger workers, suggesting complementarity across age groups. Initially, higher participation among older workers is associated with a temporary decline in productivity and a rise in unemployment; after two years, however, productivity increases and unemployment returns to its pre-shock level. Finally, we assess the macroeconomic consequences of the expected effects of the 2023 pension reform on older worker participation using conditional projections. According to Insee, the reform should raise older worker participation by 7.6 percentage points by 2030. We estimate that this increase would lead to a 0.5% rise in GDP per capita and a 1.1 percentage points improvement in the public finance balance. These relatively modest effects may reflect diminishing macroeconomic returns from the continued increase in older worker participation.