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

  • Martins, Pedro S.

    ()

    (Queen Mary, University of London)

  • Novo, Alvaro A.

    ()

    (Banco de Portugal)

  • Portugal, Pedro

    ()

    (Banco de Portugal)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4187.

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Length: 31 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4187
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  1. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  2. 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.
  3. Costas Meghir & Whitehouse, E, 1995. "Labour market transitions and retirement of men in the UK," IFS Working Papers W95/10, Institute for Fiscal Studies.
  4. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press, vol. 22(1), pages 15-39, Spring.
  5. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  6. 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.
  7. 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.
  8. 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.
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