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|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.EconomicDynamics.org/society.htm
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.
- 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.
- Conde-Ruiz, J.I. & Galasso, V., 2000.
Economics Working Papers
eco2000/24, European University Institute.
- Michele Boldrin & Juan J. Dolado & Juan F. Jimeno & Franco Peracchi, 1999. "The future of pensions in Europe," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 287-320, October.
- David E. Bloom & David Canning & Michael Moore, 2005.
"The Effect of Improvements in Health and Longevity on Optimal Retirement and Saving,"
PGDA Working Papers
0205, Program on the Global Demography of Aging.
- 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.
- Laurence J. Kotlikoff, 1996.
"Privatization of Social Security: How It Works and Why It Matters,"
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.
- 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.
- Kahn, James A., 1988. "Social security, liquidity, and early retirement," Journal of Public Economics, Elsevier, vol. 35(1), pages 97-117, February.
- 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.
- Mariacristina De Nardi & Selahattin Imrohoglu & Thomas J. Sargent, 1998.
"Projected U.S. demographics and social security,"
Working Paper Series
WP-98-14, Federal Reserve Bank of Chicago.
- repec:fda:fdaddt:2003-03 is not listed on IDEAS
- Meijdam, A.C. & Verbon, H.A.A., 1995.
"Aging and Public Pensions in an Overlapping-Generations Model,"
1995-38, Tilburg University, Center for Economic Research.
- 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., 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.
- Kydland, Finn E., 2004. "Quantitative Aggregate Theory," Nobel Prize in Economics documents 2004-4, Nobel Prize Committee.
- P. Aubert & D. Blanchet & D. Blau, 2005. "The labour market after age 50: some elements of a Franco-American comparison," Documents de Travail de la DESE - Working Papers of the DESE g2005-13, Institut National de la Statistique et des Etudes Economiques, DESE.
- Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003.
"The Macroeconomics of Early Retirement,"
CEPR Discussion Papers
3896, C.E.P.R. Discussion Papers.
- Juan Antonio Lacomba & Francisco Miguel Lagos, 2005.
"Population Aging and Legal Retirement Age,"
05/16, Department of Economic Theory and Economic History of the University of Granada..
- Bertrand Crettez & Patricia Le Maitre, 2002. "Optimal age of retirement and population growth," Journal of Population Economics, Springer, vol. 15(4), pages 737-755.
- 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).
- Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Pay-as-You-Go Social Security in a Changing Environment," Journal of Population Economics, Springer, vol. 4(4), pages 257-80, November.
- repec:fth:harver:1490 is not listed on IDEAS
- Guest, Ross S., 2006. "Population ageing, capital mobility and optimal saving," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 89-102, January.
- 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.
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.