The Effects of Pension Reform on Retirement and Human Capital Formation
Series
VWA Discussion Papers
Type
discussion paper
Date Issued
2007-01-01
Author(s)
Fleischhauer, Kai-Joseph
Abstract
The demographic transition in industrialized countries poses challenges to the pension system, which is essentially organized according to the pay-as-you-go principle in most countries. Chapter 4 of my PhD thesis aims at analyzing two proposals for pension reform in a theoretical model that endogenously explains the retirement and training decision of workers who are heterogeneous in ability. Because the economic benefits of motivating late retirement strongly depend on the employment prospects of workers near retirement age, the model includes the firms' employment decision at the extensive margin.
The first reform proposal, the implementation of individual retirement accounts, increases the workers' incentives to acquire skills and to postpone retirement. However, if the capital funded pillar of the pension system becomes strong, low-ability workers may not attain their optimal retirement age because firms refuse to employ them any longer. In a similar manner, the second reform proposal to increase the minimum retirement age may not work for low-ability workers if their separation date is determined by the firms before the minimum retirement age is achieved.
The first reform proposal, the implementation of individual retirement accounts, increases the workers' incentives to acquire skills and to postpone retirement. However, if the capital funded pillar of the pension system becomes strong, low-ability workers may not attain their optimal retirement age because firms refuse to employ them any longer. In a similar manner, the second reform proposal to increase the minimum retirement age may not work for low-ability workers if their separation date is determined by the firms before the minimum retirement age is achieved.
Language
English
Keywords
Pension Reform
Endogenous Retirement
Human Capital Formation
Employment Prospects of Older Workers
Tax-Benefit Link
Individual Retirement Accounts
Minimum Retirement Age
HSG Classification
contribution to scientific community
Refereed
No
Publisher
University of St. Gallen, Department of Economics
Publisher place
St. Gallen
Number
2007-03
Start page
1
End page
45
Pages
45
Subject(s)
Division(s)
Eprints ID
39455