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Fostering job search among older workers: the case for pension reform

  • J. Ignacio García Pérez

    ()

    (Department of Economics, Universidad Pablo de Olavide)

  • Alfonso R. Sánchez Mártin

    ()

    (Department of Economics, Universidad Pablo de Olavide)

The job search demands made upon older unemployed workers in developed economies have traditionally been very relaxed. This has recently changed in some European countries (eg, Germany and Finland), as part of an effort to increase the labor force participation of older workers. Is this new approach appropriate? There is some disagreement among academics about the optimality of this new policy stance. We contribute to this debate by exploring the consequences of institutional reform in Spain, a country with a high rate of unemployment and a tolerant attitude toward the use of unemployment benefits as early retirement income. We develop an applied model of job-search and retirement behavior; calibrate it to the specificities of the Spanish case and successfully verify its empirical validity. We use the model to explore the effects of a change in the pension rules to link early retirement penalties to the age when an individual stops paying contributions. This reform removes the incentives to remain unemployed without searching, encouraging individuals to either retire or actively engage in job seeking. It results in welfare losses, especially for those workers that respond by changing behavior; yet the reform also raises enough extra resources whereby the public authorities may more than compensate all the affected workers.

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File URL: http://www.upo.es/serv/bib/wps/econ1209.pdf
File Function: First version, 2012
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Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 12.09.

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Length: 37 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:pab:wpaper:12.09
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  1. Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed, 2004. "Labor Market Search and Optimal Retirement Policy," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 560-571, October.
  2. J. Ignacio García-Pérez & Sergi Jiménez-Martín & Alfonso R. Sánchez-Martín, 2010. "Retirement Incentives, Individual Heterogeneity and Labour Transitions of Employed and Unemployed Workers," Working Papers 513, Barcelona Graduate School of Economics.
  3. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, 2006. "Desirable misuse of unemployment benefits: the economics of “Canada Dry” retirement," CORE Discussion Papers 2006070, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999. "Social Security and Retirement in Spain," NBER Chapters, in: Social Security and Retirement around the World, pages 305-353 National Bureau of Economic Research, Inc.
  5. Jean-Olivier Hairault & Francois Langot & Thepthida Sopraseuth, 2010. "Distance to Retirement and Older Workers' Employment: The Case for Delaying the Retirement Age," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1034-1076, 09.
  6. Sergi Jiménez-Martín & Alfonso R. Sánchez Martín, 2003. "An evaluation of the life-cycle effects of minimum pensions on retirement behavior," Working Papers 108, Barcelona Graduate School of Economics.
  7. Hairault, Jean-Olivier & Langot, François & Ménard, Sébastien & Sopraseuth, Thepthida, 2011. "Optimal Unemployment Insurance for Older Workers," CEPREMAP Working Papers (Docweb) 1107, CEPREMAP.
  8. repec:hal:wpaper:hal-00668989 is not listed on IDEAS
  9. repec:hal:cesptp:hal-00668989 is not listed on IDEAS
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