Abstract
After falling for four decades, statutory retirement ages are increasing in most OECD countries. The labor market adjustment to these reforms has not yet been thoroughly investigated by the literature. We draw on a major pension reform that took place in Italy in December 2011 that increased the retirement age by up to six years for some categories of workers. We have access to a unique dataset validated by the Italian social security administration (INPS), which identifies in each private firm, based on an administrative exam of eligibility conditions, how many workers were locked in by the sudden increase in the retirement age, and for how long. We find that firms mostly affected by the lock in are those that were downsizing even before the policy shock. The increase in the retirement age seems to displace more middle-aged workers than young workers. Furthermore, there is not a one-to-one increase in the number of older workers in the firms where some workers were locked in by the reform. We provide tentative explanations for these results, based on the interaction between retirement, employment protection legislation and liquidity constraints of firms.
Highlights
OECD countries are struggling to increase their retirement ages to cope with rapidly ageing populations
We propose a novel identification strategy that makes it possible to estimate the effects of the lock in of older workers on the intergenerational profile of labor demand
Our results indicate that an increase in the number of workers locked in crowds out mostly middle-aged workers, while leaving young workers largely unaffected
Summary
OECD countries are struggling to increase their retirement ages to cope with rapidly ageing populations. Conditions imposed by multilateral organizations in the context of public debt relief programs impose an increase in the retirement age. In the case of Italy, the ECB letter outlining the conditions for the massive purchase of government bonds in August 2011 asked for a radical pension reform increasing the retirement age in the midst of a major recession. These reforms meet harsh political opposition even when the increase in the retirement age is temporary, and from the workers whose retirement is postponed. We document in this paper that there is a negative crosscountry correlation between effective age of retirement and strictness of employment protection
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