Policy Briefs
Policy Brief 2011-00-10
Retirement, Immigration, and Economic Growth
During the last decades we have observed increasing life expectancy going hand in hand with increasing years spent in good health. Thus, one may expect the working life to expand in parallel with the life span. However, the design of pension schemes and individual life cycle choices have in many cases impeded the retirement age to increase or even caused it to fall, a trend that has only recently begun to reverse. Empirical work on the relationship between health, retirement choices and the institutional details of the pension scheme is plentiful but to large extent inconclusive as to what are the drivers of retirement decisions.
In our paper on the "Optimal choice of health and retirement in a life-cycle model" (Kuhn, Wrzaczek, Prskawetz and Feichtinger) we propose a theoretical model that yields insight into the complex nexus between health, retirement and institutional settings. We show the complementarity between individual health investment and increasing age of retirement but also highlight how individual incentives are distorted in the presence of market or policy imperfections. Our study indicates the importance to set the correct incentives at the macro level to obtain the necessary adjustment of retirement ages when healthy life expectancy continues to increase.
Immigration and retirement are also closely linked. Governments have look at migrants as a way to alleviate the financial pressure over social security systems of EU member states, characterized by a progressive population ageing. The reason is that immigration changes the age structure of the destination countries. However, it also changes their skill composition. For example, Europe has been on average less successful attracting skilled migration compared to North America.
In work in progress, "Immigration, the evolution of skills, and social security" (Guillo, Laborda and Perez-Sebastian), we are trying to explain this fact.
In addition, we are reexamining whether European immigration policy should favor some characteristics of immigrant if the goal is the sustainability of the pension system.