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.
Similar content being viewed by others
Notes
Some additional work would be required to check whether the results of our model change in a continuous time framework.
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.
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.
In this case condition 13 is sufficient.
References
Anderson PM, Gustman AL, Steinmeier TL (1999) Trends in male labor-force participation and retirement: some evidence on the role of pensions and social security in the 1970’s and 1980’s. J Labor Econ 17(4):757–783
Blake D, Mayhew L (2006) On the sustainability of the UK state pension system in the light of population ageing and declining fertility. Econ J 116(512):F286–F305
Blanchard O (1985) Debt, deficits and finite horizons. J Polit Econ 93(2):223–247
Bloom DE, Canning D, Mansfield R, Moore M (2007) Demographic change, social security systems and savings. J Monet Econ 54(1):92–114
Coleman D (2002) Replacement migration or why everyone is going to have to live in Korea: a fable for our times from the United Nations. Philos Trans R Soc Lond B 357(1420):583–598
Costa DL (2002) Changing chronic disease rates and long-term declines in functional limitation among older men. Demography 39(1):119–137
Duval R (2003) The retirement effects of old-age pension and early retirement schemes in OECD countries. OECD Economics Department Working Papers 24
Ferreira CP, Pessôa SA (2007) The effects of longevity and distortions on education and retirement. J Econ Dyn 10(3):472–493
Fougère M, Harvey S, Mercenier J, Mérette M (2009) Population ageing, time allocation and human capital: a general equilibrium analysis for Canada. Econ Model 26(1):30–39
French E (2005) The effects of health, wealth and wages on labor supply and retirement behaviour. Rev Econ Stud 72(2):395–427
Fries J (1980) Aging, natural death and the compression of morbility. N Engl J Med 303(3):130–135
Gendel M (2008) Older workers: increasing their labor force participation and hours of work. Mon Labor Rev 131(1):41–54
Gruber G, Wise D (ed) (1999) Social security and retirement around the world. University of Chicago Press, Chicago
Gustman AL, Steinmeier TL (1986) A structural retirement model. Econometrica 54(3):555–584
Haider S, Loughran D (2002) Elderly labor supply: work or play. Center for Retirement Research Working Papers
Iza A, Echevarría CA (2008) Social security, education, retirement and growth. Department of Foundations of Economic Analysis II (University of the Basque Country) Working Paper 2008–2001
Johnson RW, Gordon B, Mermin T, Murphy D (2007a). The impact of late-career health and employment shocks on social security and pension wealth. The Urban Institute, Washington, DC
Johnson RW, Gordon B, Mermin T, Resseger M (2007b) Employment at older ages and the changing nature of work. AARP, Washington, DC
Kalemli-Ozcan S, Weil DN (2010) Mortality change, the uncertainty effect and the retirement. J Econ Growth 15(1):65–91
Kalwij A, Vermeulen F (2008) Health and labour force participation of older people in Europe: what do objective health indicators add to the analysis? Health Econ 17(5):619–638
Kopecky KA (2006) The trend in retirement. 2006 Meeting Papers 187, Society for Economic Dynamics
Krueger AB, Pischke JS (1992) The effect of social security on labor supply: a cohort analysis of the notch generation. J Labor Econ 10(4):412–437
Li H, Zhang J, Zhang J (2007) Effects of longevity and dependency rates on saving and growth: evidence from a panel of cross countries. J Dev Econ 84(1):138–154
Matsuyama K (2008) A one-sector neoclassical growth model with endogenous retirement. Jpn Econ Rev 59(2):139–155
McGarry K (2004) Health and retirement: do changes in health affect retirement expectations? J Hum Resour 39(3):624–648
OECD (2006) Live longer, work longer. OECD Publishing
OECD (2007) Pensions at a glance. OECD Publishing
Quinn JF (1997) The role of bridge jobs in the retirement patterns of older Americans in the 1990s. In: Salisbury D (ed) Retirement prospects in a defined contribution world. Employee Benefit Research Institute, Washington, DC
Reinhart VR (1999) Death and taxes: their implications for endogenous growth. Econ Lett 62(3):339–345
Rust J, Phelan C (1997) How social security and medicare affect retirement behavior in a world of incomplete markets. Econometrica 65(4):781–832
Schirle T (2008) Why has the labor force participation of older men increased since the mid-1990s? J Labor Econ 26(4):549–594
Smith S (2006) The retirement-consumption puzzle and involuntary early retirement: evidence from the British Household Panel Survey. Econ J 116(510):C130–C148
Wallace P (2001) Agequake. Nicholas Brealey Publishing, London
Author information
Authors and Affiliations
Corresponding author
Additional information
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.
Rights and permissions
About this article
Cite this article
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
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00148-011-0369-5