Abstract
AbstractThis paper shows that labor demand plays an important role in the labor market reactions to a pension reform in Germany. Employers with a high share of older worker inflow compared with their younger worker inflow, employers in sectors with few investments in research and development, and employers in sectors with a high share of collective bargaining agreements allow their employees to stay employed longer after the reform. These employers offer their older employees partial retirement instead of forcing them into unemployment before early retirement because the older employees incur low substitution costs and high dismissal costs.
Highlights
Labor demand and supply for older employees are not perfectly flexible, and the reaction of both market sides to labor supply shocks induced by policy measures should have an impact on labor market outcomes
We concentrate on the role of labor demand for the labor market effects of the 1992 pension reform in Germany, controlling for drivers of individual labor supply reactions, such as differences in financial incentives by birth cohort, social security wealth (SSW), and education, as well as age and cohort fixed effects
We show that the reform had the expected effects on the labor market behavior of affected older women; they strongly increased employment and, to a lesser extent, unemployment and partial retirement between the ERA and NRA to avoid pension deductions
Summary
We focus on the impact of labor demand on the labor market reactions of older women on a pension reform with an increase in labor supply. In line with previous studies, we show that pension deductions for early retirement increase the labor market attachment of older employees between ERA and NRA. Our empirical analysis shows that labor market effects of the reform depend on the type of employer the employee works for before retirement. The reaction of employers to changes in labor supply is not perfectly elastic and some employers use the options at their disposal to thwart the incentive effects of the pension reform aimed at longer employment of older employees.
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