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Reform and Backlash to Reform: Effects of Ageing and Retirement Policy

20 Pages Posted: 28 Oct 2010  

Svend E. Hougaard Jensen

Copenhagen Business School - Department of Economics

Ole Hagen Jorgensen

World Bank

Date Written: October 13, 2010

Abstract

Using a stochastic general equilibrium model with overlapping generations, this paper studies (i) the effects on both extensive and intensive labour supply responses to changes in fertility rates, and (ii) the potential of a retirement reform to mitigate the effects of fertility changes on labour supply. In order to neutralize the effects on effective labour supply of a fertility decline, a retirement reform, designed to increase labour supply at the extensive margin, is found to simultaneously reduce labour supply at the intensive margin. This backlash to retirement reform requires the statutory retirement age to increase more than proportionally to fertility changes in order to compensate for endogenous responses of the intensity of labour supply. The robustness of this result is checked against alternative model specifications and calibrations relevant to an economic region such as Europe.

Keywords: Population Aging, Labour Supply, Welfare Reform, Fertility, Retirement Age, Overlapping Generations Model

JEL Classification: D91, E20, H55, J10, J26

Suggested Citation

Hougaard Jensen, Svend E. and Jorgensen, Ole Hagen, Reform and Backlash to Reform: Effects of Ageing and Retirement Policy (October 13, 2010). Netspar Discussion Paper No. 10/2010-056. Available at SSRN: https://ssrn.com/abstract=1698786 or http://dx.doi.org/10.2139/ssrn.1698786

Svend Erik Hougaard Jensen (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark
(+45) 3815 3478 (Phone)

Ole Hagen Jorgensen

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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