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Delaying the normal and early retirement ages in Spain: behavioural and welfare consequences for employed and unemployed workers

  • Alfonso R. Sánchez Martín

    ()

    (Department of Economics, Universidad Pablo de Olavide)

  • Jose Ignacio García Pérez

    ()

    (Department of Economics, Universidad Pablo de Olavide)

  • Sergi Jiménez Martín

    ()

    (Department of Economics, Universitat Pompeu Fabra)

In this paper, we explore the links between pension reform, early retirement, and the use of unemployment as an alternative pathway to retirement. We use a dynamic rational expectations model to analyze the search and retirement behaviour of employed and unemployed workers aged 50 or over. The model is calibrated to reproduce the main reemployment and retirement patterns observed between 2002 and 2008 in Spain. It is subsequently used to analyze the effects of the 2011 pension reform in Spain, characterized by two-year delays in both the early and the normal retirement ages. We ?nd that this reform generates large increases in labour supply and sizable cuts in pension costs, but these are achieved at the expense of very large welfare losses, especially among unemployed workers. As an alternative, we propose leaving the early retirement age unchanged, but penalizing the minimum pension (reducing its generosity in parallel to the cuts imposed on individual pension bene?ts, and making it more actuarially fair with age). This alternative reform strikes a better balance between individual welfare and labour supply stimulus.

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Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 14.04.

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Length: 36 pages
Date of creation: Jun 2014
Date of revision:
Handle: RePEc:pab:wpaper:14.04
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