Progressive Pensions as an Incentive for Labor Force Participation

Fabian Kindermann and Veronika Püschel ()
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Veronika Püschel: University of Regensburg

No 2021-038, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: In this paper, we challenge the conventional idea that an increase in the progressivity of old-age pensions unanimously distorts the labor supply decision of households. So far, the literature has argued that higher pension progressivity leads to more redistribution and insurance provision on the one hand, but increases implicit taxes and therefore distorts labor supply choices on the other. In contrast, we show that a well-designed reform of the pension system has the potential to encourage labor force participation. We propose a progressive pension component linked to the employment decision of households, which implicitly subsidizes employment of the productivity poor. A simulation analysis in a quantitative stochastic overlapping generations model with productivity and longevity risk indicates that this positive employment effect can be sizable and welfare enhancing.

Keywords: progressive pensions; Labor Supply; employment incentives (search for similar items in EconPapers)
JEL-codes: D15 H31 H55 J21 J22 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-age, nep-dge, nep-lma and nep-ore
Note: M
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://humcap.uchicago.edu/RePEc/hka/wpaper/Kinder ... ions-labor-force.pdf First version, July 16, 2021 (application/pdf)

Related works:
Working Paper: Progressive Pensions as an Incentive for Labor Force Participation (2023)
Working Paper: Progressive Pensions as an Incentive for Labor Force Participation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hka:wpaper:2021-038

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