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Vortrag
Pension, Frictions and Poverty: Structural Evidence on the Consequences of Pension Reforms

Stefan Etgeton


31st Annual Congress of the European Economic Association : EEA 2016
Genf, Schweiz, 22.08.2016 - 26.08.2016


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Abstract:
After introducing obligatory and unfunded PAYG pension plans in the 19th and early 20th century, many Western countries nowadays struggle to keep up generosity. By way of illustration, US, UK, Italy and Germany all were pressured towards upward-shifting their regular retirement age by low fertility and high life-expectancy. In the presence of rationed labor markets, these reforms cannot take full effect. In this respect, distributional effects are of concern, since labor market frictions are of varying significance for indidviduals of different skills, experience and levels of tenure. Having access to high-precision administrative data I estimate a dynamic discrete choice model of retirement. The model is identified by cohort specific variation in pension benefit rules and facilitates the probability of involuntary job loss to differentiate between voluntary and involuntary retirement. A subsequent policy simulation suggests that the behavioral response to both a raise in early retirement deductions and regular retirement age is moderate and hampered by the unavailability of jobs. Due to frictions, already poverty-vulnerable groups can react least to pension reforms and consequently suffer most. Life-time income inequality is increased.

Abstract

After introducing obligatory and unfunded PAYG pension plans in the 19th and early 20th century, many Western countries nowadays struggle to keep up generosity. By way of illustration, US, UK, Italy and Germany all were pressured towards upward-shifting their regular retirement age by low fertility and high life-expectancy. In the presence of rationed labor markets, these reforms cannot take full effect. In this respect, distributional effects are of concern, since labor market frictions are of varying significance for indidviduals of different skills, experience and levels of tenure. Having access to high-precision administrative data I estimate a dynamic discrete choice model of retirement. The model is identified by cohort specific variation in pension benefit rules and facilitates the probability of involuntary job loss to differentiate between voluntary and involuntary retirement. A subsequent policy simulation suggests that the behavioral response to both a raise in early retirement deductions and regular retirement age is moderate and hampered by the unavailability of jobs. Due to frictions, already poverty-vulnerable groups can react least to pension reforms and consequently suffer most. Life-time income inequality is increased.

Stefan Etgeton

Doktorand in der Abteilung Staat



JEL-Classification: H55;J26;J64;D31;I3
Keywords: Retirement, Unemployment, Poverty
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