Advertisement

De Economist

, Volume 158, Issue 4, pp 341–359 | Cite as

Retirement of Older Workers and Employment of the Young

  • Adriaan KalwijEmail author
  • Arie Kapteyn
  • Klaas de Vos
Open Access
Article

Summary

Policy makers have often argued that an additional benefit of facilitating early retirement is that it creates employment for the young. This may happen if older and younger workers are substitutes. Nowadays policies are aimed at increasing employment of older people to counter the economic consequences of an aging population. Opponents of such policies argue that these will adversely affect youth employment. This paper revisits the nexus between employment of older and younger workers, if only to put any concerns for adverse effects of later retirement on youth employment to rest. To empirically investigate this issue we estimate a dynamic model of employment of the young, prime age and old people using panel data of 22 OECD countries over the time period 1960–2008. Our empirical analysis does not support the hypothesis that employment of the young and old are substitutes and finds some minor complementarities. This suggests that encouraging later retirement will have no adverse effect on youth employment.

Key words

youth employment retirement panel data 

Notes

Acknowledgements

We wish to thank seminar participants at the Utrecht School of Economics and the International Social Security program meetings of the National Bureau of Economic Research in Barcelona, Spain, 18–21 May 2006, and in Taormina, Italy, 24–26 May 2007, and two anonymous referees for valuable comments and Lisa Klautzer for research assistance. For financial support we wish to thank the National Bureau of Economic Research (Cambridge, USA), NETSPAR and Stichting Instituut GAK.

Open Access

This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

References

  1. Acemoglu D. (2002) ‘Technical Change, Inequality, and Labor Market’. Journal of Economic Literature XL: 7–72CrossRefGoogle Scholar
  2. Anderson T.W., Hsiao C. (1982) ‘Formulation and Estimation of Dynamic Models Using Panel Data’. Journal of Econometrics 18: 47–72CrossRefGoogle Scholar
  3. Bond S.R. (2002) ‘Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice’. Portuguese Economic Journal 1: 141–162CrossRefGoogle Scholar
  4. Bound J., Jaeger D.A., Baker R.M. (1995) ‘Problems with Instrumental Variables Estimation When The Correlation Between the Instruments and the Endogenous Explanatory Variable is Weak’. Journal of the American Statistical Association 90: 443–450CrossRefGoogle Scholar
  5. Calmfors L., Driffill J. (1988) ‘Centralization of Wage Bargaining’. Economic Policy 3(6): 13–61CrossRefGoogle Scholar
  6. Card D., Lemieux T. (2001) ‘Can Falling Supply Explain The Rising Return to College for Younger Men? A Cohort-Based Analysis’. The Quarterly Journal of Economics 116: 705–746CrossRefGoogle Scholar
  7. Fitzenberger, B. and K. Kohn, (2006), ‘Skill Wage Premia, employment, and Cohort Effects: Are Workers in Germany All of the Same Type’, Centre for European Economic Research (ZEW), Discussion Paper No. 06-044.Google Scholar
  8. Freeman, R.B. (2008), ‘Labor Market Institutions Around the World, Centre for Economic Performance’, CEP Discussion Paper No. 844.Google Scholar
  9. Gruber, J. and D.A. Wise (2004), Social Security Programs and Retirement Around the World: Micro-Estimation. National Bureau of Economic Research, The University of Chicago Press, Chicago.Google Scholar
  10. Gruber J., Wise D.A. (2010) Social Security Programs and Retirement Around the World: The Relationship to Youth Employment. Chicago University Press, ChicagoGoogle Scholar
  11. Hamermesh D.S. (1993) Labor Demand. Princeton University Press, Princeton, New JerseyGoogle Scholar
  12. Hamermesh, D.S. (2001), Older Workers in the Coming Labor “Shortage”: Implications of Labour Demand, Prepared for a Roundtable on the Demand for Older Workers, The Brookings Institution, 23 March.Google Scholar
  13. Hamermesh D.S., Pfann G.A. (1996) ‘Adjustment Costs in Factor Demand’. Journal of Economic Literature XXXIV: 1264–1292Google Scholar
  14. Hebbink G.E. (1993) ‘Production Factor Substitution and Employment by Age Group’. Economic Modelling 10: 217–224CrossRefGoogle Scholar
  15. Kalwij, A., A. Kapteyn and K. de Vos (2009), ‘Early Retirement and Employment of the young, Networks for Studies on Pensions, Aging and Retirement’, Discussion Paper 03/2009-012.Google Scholar
  16. Kantarci T., van Soest A. (2008) ‘Gradual Retirement: Preferences and Limitation’. De Economist 156: 113–144CrossRefGoogle Scholar
  17. Kapteyn A., Kalwij A., Zaidi A. (2004) The Myth of Worksharing. Labour Economics 11: 293–313CrossRefGoogle Scholar
  18. Kodde D.A., Palm F.C., Pfann G.A. (1990) Asymptotic Least-Squares Estimation Efficiency Considerations and Applications’. Journal of Applied Econometrics 5: 229–243CrossRefGoogle Scholar
  19. Maddala, G.S. and S. Wu (1999), A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test, Oxford Bulletin of Economics and Statistics, Special Issue, 61, pp. 631–652.Google Scholar
  20. Organization for Economic Co-operation and Development (2010), Statistics, http://stats.oecd.org/.
  21. Sapir A. (2006) ‘Globalisation and the Reform of European Social Models’. Journal of Common Market Studies 44(2): 369–390CrossRefGoogle Scholar
  22. Sato K. (1967) ‘A Two-Level Constant-Elasticity-of-Substitution Production Function’. Review of Economic Studies 34: 201–218CrossRefGoogle Scholar
  23. Total Economy Database (2010), Groningen Growth & Development Centre, University of Groningen, http://www.ggdc.net/dseries/totecon.shtml.
  24. Van Dalen A.P., Henkens K. (2002) ‘Early-Retirement Reform: Can it and Will it Work?’. Ageing & Society 22: 209–231CrossRefGoogle Scholar
  25. World Bank Development Indicators (2010), http://data.worldbank.org/.

Copyright information

© The Author(s) 2010

Open AccessThis is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  1. 1.Utrecht University School of EconomicsUtrechtThe Netherlands
  2. 2.Network for Studies on Pensions, Aging and Retirement (Netspar), The Netherlands
  3. 3.RANDSanta MonicaUSA
  4. 4.CentERdataTilburg UniversityTilburgThe Netherlands

Personalised recommendations