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Life expectancy and labor supply of the elderly

Abstract

Most of the 20th century saw a progressive reduction in the labor market participation of older workers, but in the 1990s, there was a turning point in this trend across the developed world. Incentives to retire early have gradually been removed and, even, substituted by benefits for workers who remain active. This study shows that these reforms will find less and less opposition from workers as a consequence of the growth in their life expectancy, as long as it has a greater positive effect on the productivity of the elderly than on the value of leisure.

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Notes

  1. Some additional work would be required to check whether the results of our model change in a continuous time framework.

  2. Condition 13 implies that, when longevity increases, the rate of change of Λ is lower than the rate of change of (1 − p)γ: its effect on the productivity of the older workers through the compression of morbidity is proportionally greater than its effect on the utility of leisure.

  3. As mentioned in Section 1, Kalemli-Ozcan and Weil (2010) identify an element that works in the opposite direction, namely, the uncertainty about the lifespan, which works in favor of enlarging the working period and savings. An increase in life expectancy reduces such uncertainty, thus lowering the willingness to save. However, this uncertainty effect is not present in our model because the agents insure against mortality risk through the annuities market.

  4. In this case condition 13 is sufficient.

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Correspondence to Fernando Pueyo.

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Responsible editor: Alessandro Cigno

This work has received financial support from the projects 37/07 of IMSERSO and ECO2009-13675 of the Spanish Ministry of Science and Innovation and from the research group ADETRE of the Government of Aragon. The authors are very grateful for the comments of the referees and the editor because they have allowed a clear improvement of the paper.

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Aísa, R., Pueyo, F. & Sanso, M. Life expectancy and labor supply of the elderly. J Popul Econ 25, 545–568 (2012). https://doi.org/10.1007/s00148-011-0369-5

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Keywords

  • Retirement
  • Labor supply of the elderly
  • Longevity

JEL Classification

  • J14
  • J22
  • J26