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Delaying the Normal and Early Retirement Ages in Spain: Behavioural and Welfare Consequences for Employed and Unemployed Workers

Author

Listed:
  • Alfonso R. Sánchez-Martin
  • J. Ignacio García-Pérez
  • Sergi Jiménez-Martín
Abstract
In this paper, we explore the links between pension reform, early retirement, and the use of unemployment as an alternative pathway to retirement. We use a dynamic rational expectations model to analyze the search and retirement behaviour of employed and unemployed workers aged 50 or over. The model is calibrated to reproduce the main reemployment and retirement patterns observed between 2002 and 2008 in Spain. It is subsequently used to analyze the effects of the 2011 pension reform in Spain, characterized by two-year delays in both the early and the normal retirement ages. We find that this reform generates large increases in labour supply and sizable cuts in pension costs, but these are achieved at the expense of very large welfare losses, especially among unemployed workers. As an alternative, we propose leaving the early retirement age unchanged, but penalizing the minimum pension (reducing its generosity in parallel to the cuts imposed on individual pension benefits, and making it more actuarially fair with age). This alternative reform strikes a better balance between individual welfare and labour supply stimulus.

Suggested Citation

  • Alfonso R. Sánchez-Martin & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2014. "Delaying the Normal and Early Retirement Ages in Spain: Behavioural and Welfare Consequences for Employed and Unemployed Workers," Working Papers 761, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:761
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Regreso al futuro: ¿jubilación anticipada voluntaria a los 60?
      by ? in Nada es Gratis on 2014-07-18 11:00:00
    2. Pensiones de invalidez: el increíble programa menguante
      by ? in Nada es Gratis on 2015-01-23 13:00:00
    3. Regreso al futuro: ¿jubilación anticipada voluntaria a los 60?
      by ? in Nada es Gratis on 2014-07-18 11:00:00
    4. Regreso al futuro: ¿jubilación anticipada voluntaria a los 60?
      by Sergi Jiménez in Nada Es Gratis on 2014-07-18 11:00:33

    Citations

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    Cited by:

    1. Pilar García-Gómez & Sílvia Garcia-Mandicó & Sergi Jiménez-Martín & Judit Vall-Castelló, 2018. "Trends in Employment and Social Security Incentives in the Spanish Pension System, 1980–2016," NBER Chapters, in: Social Security Programs and Retirement around the World: Reforms and Retirement Incentives, pages 317-371, National Bureau of Economic Research, Inc.
    2. Dai, Tiantian & Fan, Hua & Liu, Xiangbo & Ma, Chao, 2022. "Delayed retirement policy and unemployment rates," Journal of Macroeconomics, Elsevier, vol. 71(C).
    3. Zheng Shen & James Yang, 2021. "A Simulation Study of the Effect of Delayed Retirement on Welfare of the Elderly: Evidence from China," SAGE Open, , vol. 11(2), pages 21582440211, June.
    4. McQuinn, Kieran & O’Toole, Conor & Economides, Philip, 2017. "Quarterly Economic Commentary, Autumn 2017," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20173, march.
    5. Pilar García-Gómez & Sílvia Garcia-Mandicó & Sergi Jiménez-Martín & Judit Vall-Castelló, 2024. "The Effects of Social Security Incentives on Retirement in Spain," NBER Chapters, in: Social Security Programs and Retirement around the World: The Effects of Reforms on Retirement Behavior, National Bureau of Economic Research, Inc.
    6. Vigtel, Trond Christian, 2018. "The retirement age and the hiring of senior workers," Labour Economics, Elsevier, vol. 51(C), pages 247-270.
    7. Sarah Le Duigou & Pierre-Jean Messe, 2017. "Pension reforms, older workers' employment and the role of job separation and finding rates in France," TEPP Working Paper 2017-10, TEPP.
    8. Jochem de Bresser & Raquel Fonseca & Pierre-Carl Michaud, 2016. "Retirement Behavior in the U.S. and Europe," Cahiers de recherche 1609, Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques.
    9. Redmond, Paul & McGuinness, Seamus & Kelly, Elish, 2017. "Did increasing the state pension age in Ireland affect the overall retirement rate of 65 year olds?," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    early retirement; job search; 2011 pension reform;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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