Workforce Aging, Pension Reforms, and Firm Outcomes

68 Pages Posted: 13 Oct 2020

See all articles by Francesca Carta

Francesca Carta

Bank of Italy

Francesco D’Amuri

Bank of Italy

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics

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Date Written: September 29, 2020

Abstract

Raising statutory retirement ages has been a popular policy to increase the labor supply of older workers in the face of population aging. In this paper, we quantify the effect of a sharp and unexpected increase in retirement ages on firms’ input mix and economic outcomes using Italian administrative and survey data on employment, wages, value added and capital. Exploiting information on lifetime pension contributions for the universe of employees, we are able to quantify the extra number of older workers employed by each firm as a result of the reform. We find that a 10 per cent increase in older workers implies a rise in employment of young and middle-aged workers of 1.8 per cent and 1.3 per cent, respectively. Total labor costs and value added increase broadly in line with employment, with little impact on labor productivity and unit labor costs. These results suggest older workers are valuable to employers and that pension reforms postponing retirement can remove a constraint rather than place a burden on firms.

Keywords: pension reform, wages, firms and labor market outcomes

JEL Classification: H55, J24, J26

Suggested Citation

Carta, Francesca and D’Amuri, Francesco and Von Wachter, Till, Workforce Aging, Pension Reforms, and Firm Outcomes (September 29, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1297, Available at SSRN: https://ssrn.com/abstract=3710129 or http://dx.doi.org/10.2139/ssrn.3710129

Francesca Carta (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco D’Amuri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

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