Too old to work, too young to retire?

Abstract

We study whether employment prospects of old and young workers differ after a plant closure. Using Austrian administrative data, we show that old and young workers face similar displacement costs in terms of employment in the long-run, but old workers lose considerably more initially and gain later. We interpret these findings using a search model with retirement as an absorbing state, that we calibrate to match the observed patterns. Our finding is that the dynamics of relative employment losses of old versus young workers after a displacement are mainly explained by different opportunities of transition into retirement. In contrast, differences in layoff rates and job offer arrival rates cannot explain these patterns. Our results support the idea that retirement incentives, more than weak labor demand, are responsible for the low employment rates of older workers. JEL-Code: J14, J65.

Analysing plant closure effects using time-varying mixture-of-experts Markov chain clustering

“…Economists have shown that the loss of a job due to a plant closure can have major disruptive effects on future careers of workers (Jacobson et al (1993), Fallick (1996) or Ichino et al (2016)). They studied only plant closure effects for average persons, whereas our analysis applies model-based clustering to explicitly address unobserved heterogeneity in reaction to loosing a job due to an exogenous event such as a plant closure.…”

“…However, the assumption that the long-run career paths of workers who experienced plant closure follow a time-homogeneous Markov chain is not realistic (see Ichino et al (2016) , Figure 2). A descriptive investigation of the evolution of the employment rate over distance to plant closure reveals that the employment rate does not converge to a steady state, but rather declines steadily with increasing distance to plant closure.…”

“…Jacobson et al (1993), Fallick (1996), Ruhm (1991) or more recently, for Austria, Ichino et al (2016). Such a situation ideally allow us to observe how an economy absorbs exogenous shocks and how individuals react to perturbations to their stable career path.…”

Retirement Behaviour in Austria: Effects of Incentives on Old‐Age Labour Supply

“…Ichino et al. () show that although displaced workers in the age group 45–55 face reduced re‐employment probabilities compared with prime‐age workers, their employment prospects catch up over a period of two consecutive years. However, displacement of older workers is hindered by employment protection legislation such as the layoff tax, which has been shown to reduce displacement probabilities for older workers .…”

Will Domestic Economic Growth be affected by Postponed Retirement? -- From the perspective of labor capital

“…A study developed by Burtless and Quinn (2002) [8] with America as the research object indicated raising the age of retirement, especially that of women, in America after 1980s did bring some benefits to both individuals and national economy and promote the economic development. Ichino (2007) [9] expounded the substitution relation between senile workers and young ones to prove that the pension payment pressure could be alleviated through postponed retirement on the prerequisite that the employment prospect of senile workers was never deteriorating. The research conducted by Bloom, Canning and Fink (2010) [10] suggested aging population-induced economic recession could be resisted if the government postponed the retirement.…”