This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that determine the retirement decision of the elderly. We then examine analytically as well as numerically the long-run impact of labor participation of the elderly on capital accumulation and income distribution.

Previous studies indicate that occupation might affect cognitive functioning in late life. As people in low- and middle-income countries often have to work until late life, we sought to investigate if there are cognitive benefits to working later into life and whether cognitive function deteriorates after exiting the labour force. We analysed longitudinal data from the Mexican Health and Aging Study (MHAS), a nationally representative sample of Mexican adults age 50+ (N = 7,375), that assessed cognitive functioning by verbal learning, delayed recall and visual scanning. Analyses were carried out using mixed-effects modelling corrected for the influence of gender, instrumental activities of daily living, diabetes, stroke, hypertension, depression, income and marital status. Results suggest that working actively, compared to exiting the workforce, was associated with cognitive performance only in context with occupation. Domestic workers had a faster decline in verbal learning (b = −0.02, p = 0.020) and delayed recall (b = −0.02, p = 0.036) if they continued working actively and people working in administration (b = 0.03, p = 0.007), sales (b = 0.02, p = 0.044) and educators (b = 0.03, p = 0.049) had a slower decline in visual scanning if they continued working in old age. Our findings indicate that continued participation in the labour force in old age does not necessarily come with cognitive benefits. Whether or not working actively in later life protects or even harms cognitive functioning is likely to depend on the type of job.

Over the past two decades, the share of individuals claiming Social Security at the Early Eligibility Age has dropped and the average retirement age has increased. At the same time, Social Security rules have changed substantially, employer-sponsored retirement plans have shifted from defined benefit (DB) to defined contribution (DC), health has improved, and mortality has decreased. In theory, all of these changes could lead to a trend toward later claiming. Disentangling the effect of any one change is difficult because they have been occurring simultaneously. This paper uses the Gustman and Steinmeier structural model of retirement timing to investigate which of these changes matter most by simulating their effects on the original cohort (1931–1941) of the Health and Retirement Study (HRS). The predicted behavior is then compared with the actual retirements of the Early Boomer cohort (1948–1953) to see how much of the later cohort's delayed claiming and retirement can be explained by these changes. The Early Boomer cohort was less likely to be fully retired than the HRS cohort at both age 62 (36.7% vs. 44.0%) and age 64 (49.5% vs. 53.9%). The model suggests that the shift from DB toward DC plans was the biggest contributor to these declines, followed by better health. Social Security rules and improvements in mortality played smaller roles.

In this paper I study the impact of increasing longevity on pay-as-you-go pension systems. First, I show that increasing longevity increases the internal rate of return. The size of the effect differs for different policy regimes. It is higher for the case where the retirement age is increased to keep the system in balance than for the case where the necessary adjustment is achieved by reducing pension benefits. Second, I study optimally chosen retirement decisions and I show that the socially optimal policy involves a shorter working life than the private optimum. The social optimum can be implemented by the use of a PAYG system that combines an actuarial and a flat pension.