Working Paper: NBER ID: w15744
Authors: Axel H. Boersch-Supan; Alexander Ludwig
Abstract: The extent of the demographic changes in Europe is dramatic and will deeply affect future labor, financial and goods markets. The expected strain on public budgets and especially social security has already received prominent attention, but aging poses many other economic challenges that threaten growth and living standards if they remain unaddressed. \n \nThis paper focuses on three large Continental European countries: France, Germany, and Italy. These countries have large pay-as-you-go pension systems and vulnerable labor markets. At the same time, they show remarkable resistance against pension and labor market reform. While there is no shortage of reform proposals to address population aging, most of those focused on pension and labor market reform, little is known about behavioral reactions to such reforms. \n \nThis paper therefore sheds light on the potential benefits of pension and labor market reform for growth and living standards, taking into account behavioral reactions to specific reforms. Which behavioral reactions will strengthen, which will weaken reform policies? Can Old Europe maintain its standard of living even if behavioral reactions offset some of the current reform efforts?
Keywords: demography; labor markets; pension reform; economic growth; behavioral reactions
JEL Codes: D13; E27; F16; F21; H55; J1; J21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| raising the statutory retirement age (J26) | increase labor supply (J20) |
| raising the statutory retirement age (J26) | lower social security contributions (H55) |
| lower social security contributions (H55) | increase labor supply across all ages (J49) |
| raising the statutory retirement age (J26) | decrease hours supplied in certain sectors (J29) |
| encouraging female labor supply through public provision of daycare facilities (J48) | decrease male labor supply (J22) |
| behavioral reactions to reforms (C92) | dampen net effect of reforms (E69) |