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Increasing the Legal Retirement Age: The Impact on Wages, Worker Flows and Firm Performance

Author

Listed:
  • Martins, Pedro S.

    () (Queen Mary, University of London)

  • Novo, Alvaro A.

    () (Banco de Portugal)

  • Portugal, Pedro

    () (Banco de Portugal)

Abstract

Many pay-as-you-go pension systems have increased or plan to increase their legal retirement age (LRA) to address the financial consequences of ageing. Although the success of these policies is ultimately determined at the labour market, little is known about the effects of higher LRAs at the firm level. Here, we identify this effect by considering a legislative reform introduced in Portugal in 1994: women's LRA was gradually increased from 62 to 65 years while men's LRA stayed unchanged at 65. Using detailed matched employer-employee panel data and difference-in-differences matching methods, we analyse the effects of the reform in terms of a number of worker- and firm-level outcomes. After providing evidence of compliance with the law, we find that the wages and hours worked of older women (those required to work longer) were virtually unchanged. However, firms employing older female workers significantly reduced their hirings, especially of younger female workers. Those firms also lowered their output although not their output per worker.

Suggested Citation

  • Martins, Pedro S. & Novo, Alvaro A. & Portugal, Pedro, 2009. "Increasing the Legal Retirement Age: The Impact on Wages, Worker Flows and Firm Performance," IZA Discussion Papers 4187, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4187
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    References listed on IDEAS

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    1. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    2. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 15-39, Spring.
    3. Meghir, Costas & Whitehouse, Edward, 1997. "Labour market transitions and retirement of men in the UK," Journal of Econometrics, Elsevier, vol. 79(2), pages 327-354, August.
    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. Gary Burtless & Joseph F. Quinn, 2002. "Is Working Longer the Answer for an Aging Workforce?," Boston College Working Papers in Economics 550, Boston College Department of Economics.
    6. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    7. Barbara Sianesi, 2004. "An Evaluation of the Swedish System of Active Labor Market Programs in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 133-155, February.
    8. Orley Ashenfelter & David Card, 2002. "Did the Elimination of Mandatory Retirement Affect Faculty Retirement?," American Economic Review, American Economic Association, vol. 92(4), pages 957-980, September.
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    Cited by:

    1. C Machado & Miguel Portela, 2014. "Hours of work and retirement behaviour," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-22, December.
    2. repec:spr:chfecr:v:4:y:2016:i:1:d:10.1186_s40589-016-0036-9 is not listed on IDEAS
    3. Otrachshenko, Vladimir & Popova, Olga & Tavares, José, 2016. "Psychological Costs of Currency Transition: Evidence from Euro Adoption," CEPR Discussion Papers 11071, C.E.P.R. Discussion Papers.
    4. Werner Eichhorst & Tito Boeri & An De Coen & Vincenzo Galasso & Michael Kendzia & Nadia Steiber, 2014. "How to combine the entry of young people in the labour market with the retention of older workers?," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-23, December.
    5. Michela Bia & Pierre-Jean Messe & Roberto Leombruni, 2010. "Young-in Old-out: a new evaluation," TEPP Working Paper 2010-14, TEPP.
    6. Zou, Tieding & Ye, Hang, 2013. "养老金亏空与劳动力市场的联动效应——普遍延迟退休,还是分类延迟退休?
      [The Interaction between Pension Deficit and Labor Market——Unified Delay Or Differentiated Delay ?]
      ," MPRA Paper 58232, University Library of Munich, Germany, revised 03 Jan 2014.
    7. Paula C. Albuquerque & João C. Lopes, 2010. "Economic impacts of ageing: an inter-industry approach," International Journal of Social Economics, Emerald Group Publishing, vol. 37(12), pages 970-986, October.
    8. Ayako Kondo, 2016. "Effects of increased elderly employment on other workers’ employment and elderly’s earnings in Japan," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-23, December.
    9. Pedro Martins & Jim Jin, 2010. "Firm-level social returns to education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 539-558, March.
    10. repec:eee:labeco:v:51:y:2018:i:c:p:247-270 is not listed on IDEAS
    11. Pedro S. Raposo & Pedro Portugal, 2015. "Seriously Strengthening the Tax-Benefit Link," Working Papers w201505, Banco de Portugal, Economics and Research Department.
    12. Portugal, Pedro & Raposo, Pedro, 2015. "Seriously Strengthening the Tax-Benefit Link," IZA Discussion Papers 8785, Institute for the Study of Labor (IZA).
    13. Ilmakunnas, Pekka & Ilmakunnas, Seija, 2011. "Hiring older employees: Do incentives of early retirement channels matter?," MPRA Paper 30885, University Library of Munich, Germany.
    14. Michela Bia & Roberto Leombruni & Pierre-Jean Messe, 2009. "Young in-Old out: a new evaluation based on Generalized Propensity Score," LABORatorio R. Revelli Working Papers Series 93, LABORatorio R. Revelli, Centre for Employment Studies.
    15. Otrachshenko, Vladimir & Popova, Olga & Tavares, José, 2016. "Psychological costs of currency transition: evidence from the euro adoption," European Journal of Political Economy, Elsevier, vol. 45(C), pages 89-100.
    16. Pedro Martins & Álvaro A. Novo & Pedro Portugal, 2007. "The Economic Impact of Rising the Retirement Age: Lessons From the September 1993 Law," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    social security reform; older workers; matching estimators;

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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