Does the early retirement policy really benefit women?

Abstract

China’s mandatory retirement policy requires female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier, providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequences of China’s gender-specific mandatory retirement policy using a calibrated overlapping generations model with heterogeneous agents and incomplete markets. We find that early mandatory retirement reduces welfare for women. One of the reasons for this result is that China’s public pension benefits are only partially indexed to economic growth, and therefore, women who retire earlier than men benefit less from economic growth. Our quantitative results suggest that equalizing the retirement age across genders will generate welfare gains for both men and women. Furthermore, we find low replacement rate and high men to women ratio diminish this welfare gain.