Retirement Age Reforms and Worker Substitutability: Implications for Employment of Older Workers

Sona Badalyan

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper studies how labor demand factors—specifically worker substitutability and job-specific skills—shape employment responses to a rise in the early retirement age. Using a regression discontinuity design, I exploit a 1999 German reform that eliminated the option for women to retire at age 60. Before the reform, older workers could exit voluntarily, thereby imposing turnover costs on firms. Afterward, firms were better able to retain less substitutable, more difficult-to-replace workers for whom turnover costs are higher. At the same time, the loss of early pension eligibility reduced workers’ outside options, allowing firms to offer lower wages. The reform thus improved the retention of less substitutable workers, lowering both turnover costs and wages.

Keywords: aging; raise in the retirement age; internal labor markets; human capital; worker substitutability (search for similar items in EconPapers)
JEL-codes: H32 H55 J21 J24 J26 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-age and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp794

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