Retirement of Older Workers and Employment of the Young

Abstract

Policy makers have often argued that an additional benefit of facilitating early retirement is that it creates employment for the young. This may happen if older and younger workers are substitutes. Nowadays policies are aimed at increasing employment of older people to counter the economic consequences of an aging population. Opponents of such policies argue that these will adversely affect youth employment. This paper revisits the nexus between employment of older and younger workers, if only to put any concerns for adverse effects of later retirement on youth employment to rest. To empirically investigate this issue we estimate a dynamic model of employment of the young, prime age and old people using panel data of 22 OECD countries over the time period 1960–2008. Our empirical analysis does not support the hypothesis that employment of the young and old are substitutes and finds some minor complementarities. This suggests that encouraging later retirement will have no adverse effect on youth employment.