Working Paper: CEPR ID: DP2589
Authors: Jos Ignacio Conde Ruiz; Vincenzo Galasso
Abstract: Generous early retirement provisions account for a large proportion of the drop in the labour force participation of elderly workers. The aim of this paper is to provide a political-economic explanation of the wide spread adoption of early retirement. We suggest that the political support for generous early retirement provisions relies on: (i) the existence of an initial, significant group of redundant elderly workers with incomplete working history, who are not entitled to an old age pension; and (ii) the policy persistence that this provision introduces by inducing low-ability workers to retire early. The majority which supports a social security system with early retirement in a bidimensional voting game is composed of elderly workers with incomplete working history and low-ability workers. A descriptive analysis of eleven OECD countries confirms the relevance of the initial group of redundant elderly workers. Early retirement provisions were adopted during the deindustrialization process, almost always, immediately after the first severe decrease in industrial employment.
Keywords: Deindustrialization; Policy Persistence; Social Security; Structure; Induced Equilibrium
JEL Codes: D72; H53; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| redundant elderly workers without pension rights (J26) | support for early retirement provisions (J26) |
| introduction of early retirement provisions (J26) | policy persistence (E61) |
| early retirement provisions (J26) | incentivize low-ability workers to retire early (J26) |
| incentivize low-ability workers to retire early (J26) | new group of workers with incomplete work histories (J69) |
| new group of workers with incomplete work histories (J69) | ongoing political support for early retirement provisions (J26) |
| political support for early retirement (J26) | sustained by redundant elderly workers during deindustrialization (J26) |
| low-ability young workers (J24) | expect to benefit from early retirement system in the future (J26) |