Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter

David de la Croix, Olivier Pierrard and Henri Sneessens

No 2010037, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper re-examines the effects of population aging and pension reforms in an OLG model with labor market frictions. The most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate. Exogenous shocks (such as aging) leading to lower interest rates also imply lower equilibrium unemployment rates, because lower capital costs stimulate labor demand and induce firms to advertize more vacancies. These effects may be reinforced by increases in the participation rate of older workers, induced by the higher wage rates and the larger probability of finding a job. These results imply that neglecting labor market frictions and employment rate changes may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate.

Keywords: Overlapping Generations; Search Unemployment; Labor Force Participation; aging; Pensions; Labor Market (search for similar items in EconPapers)
JEL-codes: E24 H55 J26 J64 (search for similar items in EconPapers)
Pages: 32
Date: 2010-09-30
New Economics Papers: this item is included in nep-age, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Aging and pensions in general equilibrium: Labor market imperfections matter (2013)
Working Paper: Aging and pensions in general equilibrium: labor market imperfections matter (2013)
Working Paper: Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter (2011)
Working Paper: Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter (2010)
Working Paper: Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2010037

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