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Public pensions in the age of automation

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Abstract

We analyze the impact of improved automation on the size and distribution of pension benefits, and on the optimal size of public pension systems. To this end, we build an overlapping generations model with heterogeneous agents. Automation is either conceptualized in a capital-skill complementarity (CSC) or task-based (TB) fashion. We find that any productivity gains of automation realized as increased returns to savings disproportionately benefit high-skilled workers who are less dependent on illiquid public pensions. A redistributive pension system can reduce public pension inequality but increase inequality in private retirement savings. The optimal size of the pension system is larger in the TB specification where displacement effects of automation are accounted for. We do not find that automation-driven growth warrants any change to the optimal size of the public pension system.

Suggested Citation

  • Gustafsson, Johan & Lanot, Gauthier, 2024. "Public pensions in the age of automation," Umeå Economic Studies 1030, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:1030
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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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