Munich Personal RePEc Archive

Voluntary and involuntary retirement decision : does real wage rigidity affects the effectiveness of pension reforms ?

Cheron, Arnaud and Khaskhoussi, Fouad and Khaskhoussi, Tarek and Langot, François (2004): Voluntary and involuntary retirement decision : does real wage rigidity affects the effectiveness of pension reforms ?

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Abstract

In this paper, we integrate the retirement deadline taking into account both labor demand and labor supply specificities. This approach reveals that firms' employment decisions play an active role in the early retirement decision. We show that, in a walrasian economy, social security reforms aimed at delaying the retirement age by introducing actuarially fair adjustments are particularly powerful to stimulate the employment of older workers. However, if real wages are rigid, two situations must be distinguished. First, if the wage is lower than its walrasian value, the separation date is determined by workers, fair adjustments would push back the retirement age. In contrast, when the wage exceeds its walrasian rate, the separation date is determined by firms. Trying to increase the rate of employment of older workers by introducing pension incentives seems to be an unattainable goal. Therefore, there is a good reason for focusing primarily on labor demand. In this case, it appears that paying a subsidy to firms is the best policy for attaining the optimal retirement age.

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