Optimal Retirement Age and Aging Population
Over recent decades, most developed countries have experienced a fall in fertility and an increase in longevity which have led to a significant increase in the weight of elderly on the population and a decrease in the number of working-age people per elderly population. Economists and politicians are concerned about the aging population process and the need to introduce policy reforms such as fertility enhancing programs and delaying the legal retirement age. This paper introduces a model which determines the optimal retirement age and analyzes the effects of population aging on it. What is revealed is the different role that the drop in the fertility rate and the increase in longevity play in determining the optimal retirement age. While an increase in longevity always implies an increase in the optimal retirement age, a drop in the fertility rate does not. The reason is that a drop in fertility involves three offsetting mechanisms: first, it raises the weight of elders on population increasing the dependency ratio (defined as non working population, children and retirees, over working population), which involves a larger optimal retirement age. Second, it also diminishes the weight of children, and this reduces the dependency ratio, decreasing the optimal retirement age. Finally, a drop in fertility rate increases the weight of older workers in the labor force. If these are more productive than the average, then the drop in the fertility increases the productivity of the labor force and reduces the optimal retirement age. In spite of these counterweighing mechanisms, this paper provides a clear measure to determine the sign of the effect of a drop in the fertility rate over per capita labor and the optimal retirement age. Such measure may be easily obtained from the data an establishes a precise criterion for clarifying the aging population debate
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990.
"An Aging Society: Opportunity or Challenge?,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
- Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Pay-as-You-Go Social Security in a Changing Environment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 4(4), pages 257-280, November.
- Meijdam, A.C. & Verbon, H.A.A., 1997.
"Aging and public pensions in an overlapping-generations model,"
Other publications TiSEM
b93c8773-5708-434f-8386-6, Tilburg University, School of Economics and Management.
- Meijdam, Lex & Verbon, Harrie A A, 1997. "Aging and Public Pensions in an Overlapping-Generations Model," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 29-42, January.
- Meijdam, A.C. & Verbon, H.A.A., 1995. "Aging and Public Pensions in an Overlapping-Generations Model," Discussion Paper 1995-38, Tilburg University, Center for Economic Research.
- Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2004.
"Fertility, Mortality, and the Developed World’s Demographic Transition,"
CESifo Working Paper Series
1326, CESifo Group Munich.
- Fehr, Hans & Jokisch, Sabine & Kotlikoff, Laurence J., 2008. "Fertility, mortality and the developed world's demographic transition," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 455-473.
- David E. Bloom & David Canning & Michael Moore, 2004. "The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving," NBER Working Papers 10919, National Bureau of Economic Research, Inc.
- Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2000.
CEPR Discussion Papers
2589, C.E.P.R. Discussion Papers.
- Laurence J. Kotlikoff, 1995.
"Privatization of Social Security: How it Works and Why it Matters,"
Boston University - Institute for Economic Development
66, Boston University, Institute for Economic Development.
- Laurence J. Kotlikoff, 1996. "Privatization of Social Security: How It Works and Why It Matters," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 1-32 National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff, 1995. "Privatization of Social Security: How It Works and Why It Matters," NBER Working Papers 5330, National Bureau of Economic Research, Inc.
- Holzmann, Robert, 1997. "On economic benefits and fiscal requirements of moving from unfunded to funded pensions," Financiamiento para el Desarrollo 48, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Juan Lacomba & Francisco Lagos, 2006. "Population aging and legal retirement age," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(3), pages 507-519, July.
- Heijdra, Ben J. & Ligthart, Jenny E., 2004.
"The macroeconomic dynamics of demographic shocks,"
CCSO Working Papers
200403, University of Groningen, CCSO Centre for Economic Research.
- J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated".
"The Macroeconomic of Early Retirement,"
194, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1999.
"Projected U.S. Demographics and Social Security,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 575-615, July.
- Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
- BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, "undated".
"Pay-as-you go social security in a changing environment,"
CORE Discussion Papers RP
961, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Boadway, R. & Marchand, M. & Pestieau, P., 1990. "Pay-as-you-go social security in a changing environment," CORE Discussion Papers 1990054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Guest, Ross S., 2006. "Population ageing, capital mobility and optimal saving," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 89-102, January.
- repec:fth:harver:1490 is not listed on IDEAS
- Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(4), pages 737-755.
- Juan Antonio Lacomba & Francisco Miguel Lagos, 2005. "Population Aging and Legal Retirement Age," ThE Papers 05/16, Department of Economic Theory and Economic History of the University of Granada..
- Alan J. Auerbach & Laurence J. Kotlikoff & Robert P. Hagemann & Giuseppe Nicoletti, 1989. "The Economic Dynamics of an Ageing Population: The Case of Four OECD Countries," OECD Economics Department Working Papers 62, OECD Publishing.
- MARCHAND, M. & MICHEL, Ph. & PESTIEAU, P., 1990. "Optimal intergenerational transfers in a growth model with fertility and productivity changes," CORE Discussion Papers 1990059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
When requesting a correction, please mention this item's handle: RePEc:red:sed012:728. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.