Reform and Backlash to Reform : Economic Effects of Ageing and Retirement Policy
Using a stochastic general equilibrium model with overlapping generations, this paper studies (i) the effects on both extensive and intensive labor supply responses to changes in fertility rates, and (ii) the potential of a retirement reform to mitigate the effects of fertility changes on labor supply. In order to neutralize the effects on effective labor supply of a fertility decline, a retirement reform, designed to increase labor supply at the extensive margin, is found to simultaneously reduce labor supply at the intensive margin. This backlash to retirement reform requires the statutory retirement age to increase more than proportionally to fertility changes in order to compensate for endogenous responses of the intensity of labor supply. The robustness of this result is checked against alternative model specifications and calibrations relevant to an economic region such as Europe.
Summary: | Using a stochastic general equilibrium
model with overlapping generations, this paper studies (i)
the effects on both extensive and intensive labor supply
responses to changes in fertility rates, and (ii) the
potential of a retirement reform to mitigate the effects of
fertility changes on labor supply. In order to neutralize
the effects on effective labor supply of a fertility
decline, a retirement reform, designed to increase labor
supply at the extensive margin, is found to simultaneously
reduce labor supply at the intensive margin. This backlash
to retirement reform requires the statutory retirement age
to increase more than proportionally to fertility changes in
order to compensate for endogenous responses of the
intensity of labor supply. The robustness of this result is
checked against alternative model specifications and
calibrations relevant to an economic region such as Europe. |
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