Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-11-22T12:01:49.653Z Has data issue: false hasContentIssue false
  • English
  • Français

Choosing the legal retirement age in presence of unemployment*

Published online by Cambridge University Press:  09 January 2015

Georges Casamatta  and
Caroline De Paoli
Georges Casamatta
Affiliation:
Toulouse School of Economics (GREMAQ-CNRS and CEPR); email: [email protected]
Caroline De Paoli
Affiliation:
ISG and Paris School of Economics (INRA)
Get access

Summary

A general conclusion of the theoretical literature on pensions is, confronted to an increased longevity, to encourage continued activity. This literature however assumes a perfect labour market. The central question addressed in this article is whether it is still desirable to increase the retirement age when individuals face the risk of being unemployed.

In this purpose, we study the design of the P ay-As-You-Go pension system, focusing on the determination of the retirement age, in a model where people differ according to age only and face in every period a given probability of becoming unemployed.

We first determine the optimal pension system, which consists in a payroll tax rate, a pension benefit level and a retirement age and study its comparative statics with respect to a change of the unemployment rate and the length of life. Our main findings are the following. First, it is optimal to postpone retirement when life expectancy increases. Second, when unemployment benefits are low the optimal retirement age may decrease with the unemployment rate.

We then characterize the issue-by-issue voting equilibrium and compare it to the optimal pension scheme. It is shown that the median voter in general chooses a retirement age lower than the optimal one as well as a higher payroll tax rate.

Résumé

Résumé

La littérature théorique sur les retraites conclut que, dans une situation où la longévité augmente, les individus devraient travailler plus longtemps. Dans cette article, nous cherchons à déterminer si cette conclusion est toujours valide lorsque les individus font face au risque de chômage. Dans cette optique, nous étudions le choix du système de retraite par répartition, en mettant l'accent sur l’âge de départ en retraite, dans un modèle où les individus diffèrent par leur âge seulement et font face au risque de chômage. Nous déterminons dans un premier temps le système de retraite optimal, ce système étant caractérisé par le taux de cotisation, le niveau de prestation et l’âge de la retraite et nous étudions la statique comparative par rapport au taux de chômage et la durée de vie. Nos résultats principaux sont les suivants. Tout d'abord, il est optimal de différer l’âge de la retraite lorsque la durée de vie augmente. Ensuite, nous trouvons que l’âge de la retraite optimal peut diminuer lorsque le risque de chômage augmente. Nous caractérisons enfin l’èqui-lilibre de vote et le comparons avec le système optimal. Nous montrons que l’électeur médian choisit en général un âge de la retraite inférieur àl’âge optimal ainsi qu'un taux de cotisation plus important.

Keywords

retirement ageunemploymentH55système de retraitechômageéquilibre politiqueâge de départ à la retraiteH55
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 78 , Issue 1 , March 2012 , pp. 5 - 25
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

This research has benefitted from the financial support of the AN R “Retraite” (ANR-05-BLAN-0020). We thank Peter Diamond for a useful discussion as well as seminar participants at university of Cergy-Pontoise (THEMA) and Paris School of Economics (INRA).

References

Casamatta, G., Cremer, H., and Pestieau, P. (2005). Voting on pensions with endogenous retirement age. International tax and public finance. 12, 7–28.Google Scholar
Conde-Ruiz, J. I. and Galasso, V. (2004). The macroeconomics of early retirement. Journal of Public Economics 88, 1849-69.Google Scholar
Conde-Ruiz, J. I., Galasso, V., and Profeta, P. (2005). Early retirement and social security: Along term perspective. Discussion Paper 1571, CESifo.Google Scholar
Corneo, G. and Marquardt, M. (2000). Public pensions, unemployment insurance and growth. Journal of public economics 75, 293–311.Google Scholar
Cremer, H. and Pestieau, P. (2003). The double dividend of postponing retirement. International tax and public finance 10(4), 419-34.Google Scholar
LERmel, R. and Keuschnigg, C. (2000). Funded pensions and unemployment. Finanzarchiv 57, 22–38.Google Scholar
Diamond, P. (2005). Pensions for an aging population. Discussion Paper 11877, NBER.Google Scholar
Galasso, V. (2008). Postponing retirement: the political push of aging. Journal of Public Economics 92, 2157-69.Google Scholar
Gans, J. and Smart, M. (1996). Majority voting with single-crossing preferences. Journal of Public Economics 59, 219-37.Google Scholar
Gruber, J. Milligan, K., and Wise, D. A. (2009). Social security programs and retirement around the world: The relationship to youth employment, introduction and summary, working paper 14647, NBER.Google Scholar
Gruber, J. and Wise, D. (1998). Social security and retirement: an international comparison. American economic review 88, 158-63.Google Scholar
Keuschnigg, C. and Keuschnigg, M. (2004). Aging, labor markets and pension reform in austria. Finanzarchiv 60 (3), 359-92.Google Scholar
Lacomba, J. A. and Lagos, F. M (2007). Political election on legal retirement age. Social Choice and Welfare 29, 1–17.Google Scholar
Shepsle, K. A. (1979). Institutional arrangements and equilibrium in multidimensional voting models. American Journal of Political Science 23, 23–57.Google Scholar