Welfare Implications of a Flexible Retirement Policy
16 Pages Posted: 8 Aug 2017
Date Written: August 1, 2017
Abstract
Facing lengthening lifespans and economic concerns, workers and governments are increasingly considering the possibility of delayed retirement ages. However, the postponement of retirement may not be universally feasible, since not all workers may be willing and able to continue working past the standard retirement age, due to health status and other factors. We model this uncertain retirement problem in an overlapping generations general equilibrium framework with flexible retirement, where members of the older generation continue working with some probability, and otherwise retire. Comparing the policies of flexible retirement and mandatory retirement, we find that the consumption and welfare consequences depend largely on the labor intensity of the production function. Higher labor intensity of production tends to yield favorable social welfare results for the flexible retirement policy compared to the mandatory policy. We discuss policy insights and possible implications in China and other demographically shifting countries.
Keywords: Retirement Policy, Welfare Economics, Overlapping Generations, Demographic Trends
JEL Classification: H3, I1, J1
Suggested Citation: Suggested Citation