A Clash of Generations? Increase in Retirement Age and Labor Demand for Youth

34 Pages Posted: 8 Aug 2016

See all articles by Tito Boeri

Tito Boeri

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Pietro Garibaldi

University of Turin - Faculty of Economics

Espen R. Moen

BI Norwegian Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 2016

Abstract

Most European countries experienced a dramatic increase in youth unemployment since the Great Recession of 2007-2009. For the Euro area as a whole, employment in the 15-24 age group declined by almost 17% over a 6 years span, in Southern Europe declines ranged between 34% (Italy) and 57% (Spain). Demographic and institutional developments cannot, by themselves, account for these dramatic changes in the structure of employment by age groups. This paper evaluates whether and to which extent the increase in the retirement age introduced in several countries in the middle of the recession could have contributed to divergent dynamics of employment rates at the two extremes of the age distribution. We take Italy as a case study as a major reform took place in December 2011 increasing the retirement by up to five years for some categories of workers. We have access to a unique dataset from the Italian social security administration (INPS) identifying in each private firm the fraction of workers hit by the increase in the retirement age. We look at the dynamics of youth hirings in the same firms as well as in firms where no workers were locked-in. Our results clearly indicate that before and after the reform, firms that were more exposed to the increase in employment duration of senior workers significantly reduced youth hirings. The results are also quantitatively sizeable. We estimate that a lock-in of five workers for one year reduces youth hiring of approximately one full time equivalent worker. Overall, out of a total loss of 150 thousand youth jobs, 36 thousand losses can be attributed to the reform. A variety of robustness tests confirm our findings.

Keywords: labor demand, lump-of-labor, Pension Reforms, youth unemployment

JEL Classification: H55, J0

Suggested Citation

Boeri, Tito and Garibaldi, Pietro and Moen, Espen R., A Clash of Generations? Increase in Retirement Age and Labor Demand for Youth (August 2016). CEPR Discussion Paper No. DP11422. Available at SSRN: https://ssrn.com/abstract=2820077

Tito Boeri (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Pietro Garibaldi

University of Turin - Faculty of Economics ( email )

Facoltà di Economia
Corso Unione Sovietica 218 bis
Torino, 10134
Italy

Espen R. Moen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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