Labor force participation by the elderly and employment of the young: The case of France

Abstract

One of the justifications provided for early retirement policies in developed countries is the idea that such policies can facilitate access to the labor market for younger people and help lower global unemployment. But many questions remain on the true effect on young workers of these policies. The objective of the present paper is to study the long term relationship between labor force participation of the old and unemployment of the young in France since the beginning of the 1970s. Establishing causal relationship of the reduction of labor force participation of the old on employment prospect of the young is a challenging work. Evidence of the correlation between youth labor market outcomes and older worker's labor force participation plead more in favor of a positive association between younger and older workers' employment. An increase in the older workers' participation is indeed correlated with an increase in the employment rate of young workers and a decrease in their unemployment rate. Even controlling for the economic cycle, this positive association remains - albeit less robustly. These correlations, based on times series, are not however evidence of causal relationship between younger and older workers' employment. We then use an index summarizing the intensity of policies aiming at removing older workers from the labor market, based on Social Security wealth. The effect of the wealth index on youth labor market outcomes is always significant, whatever the set of the control variables we use and with a similar size and the same sign. The coefficient is negative for both the unemployment and employment of youth, with or without controlling for school attendance. In France policies aiming at removing older workers from the labor market have been prompted by increase in unemployment. Granger causality tests between youth unemployment and the Wealth index show therefore a significant link in both directions, whereas nothing is significant between youth employment and the Wealth index. Hence if we do not find evidence that reducing labor force participation of the old provide jobs for the young, we cannot exclude altogether that some general and unaccounted cause is hiding its true impact.