Retirement Flexibility: Not Just for Workers, But Also for Companies

VINCENZO GALASSO AND PIERA BELLO HIGHLIGHT THIS BY ANALYZING THE CASE OF THE ENTRY INTO FORCE OF THE MUTUAL RECOGNITION AGREEMENT IN 2002 IN SWITZERLAND

The aging of the baby-boom cohorts makes the need for discussing pre-retirement behavior more and more pressing. Most of the economic literature on early retirement has so far focused on the supply side by emphasizing the role played by financial incentives, health status and family issues. Less is known about the role played by firms that may push or even force workers to retire. News and experience tell us that firms would prefer elderly workers to choose an early retirement as their wages increase despite the drop in their productivity.
 
In the working paper Old Before Their Time: The Role of Employers in Retirement Decisions, co-authored with Piera Bello, Vincenzo Galasso delivers an empirical evidence that pre-retirement choices can also be induced by employers. He manages to do it by studying the effects of an exogenous shock: the implementation in 2002 of the Mutual Recognition Agreement that reduced the cost of exporting to the European Union for Swiss firms, boosting competition. He compared early retirement behavior in a treated group of MRA industries and a control group of non-MRA industries in Switzerland.
 
“Firms that have faced greater competition have restructured their labor force more than those not subject to the MRA”, Galasso says. The former have modified the composition of their labor force by substituting elderly workers aged 56-64 (+ 7% of pre-retirements after the announcement of the agreement) with younger workers aged 31-45.
 
“Our paper shows that firms play a role in early retirement. An open question remains: how can you govern pre-retirement behavior? Until the 1990s, labor market participation of elderly workers has dropped because of firms and trade union policies whose cost was dumped on the community. This is no longer possible and will be even less so in the future. The request for a flexible labor market exits still exists, nonetheless, and it must be met by observing the principles of actuarial fairness and budgetary constraints”. This is a puzzle that only highly-skilled policymakers can solve.

Read more about this topic:
Good News: We Will Grow Old. By Francesco Billari
Why Over 65s Don’t Like Supermarket Offers for the Elderly
Demographic Trends Suggest that Interest Rates Will Increase
Long Term Care in Italy Involves Ten Million People and Will Double
How to Help Generations Coexist at Work and Save Pensions
 

by Claudio Todesco