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Working less for longer: unintended effects of longevity adjustment of retirement age

Svend E. Hougaard Jensen (), Thorsteinn Sigurdur Sveinsson () and Miguel Sousa Duarte ()
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Svend E. Hougaard Jensen: Copenhagen Business School
Thorsteinn Sigurdur Sveinsson: Central Bank of Iceland
Miguel Sousa Duarte: Copenhagen Business School

International Tax and Public Finance, 2025, vol. 32, issue 4, No 5, 1076-1105

Abstract: Abstract Using a standard macro model with overlapping generations in the manner of Blanchard–Yaari, we show that by broadening the labour supply on the extensive margin through longevity adjustment of the statutory retirement age, labour supply is likely to decrease on the intensive margin. However, this backlash effect depends on the specific design of the pension system. It is significantly higher under a pay-as-you-go scheme with fixed benefits compared to a pay-as-you-go scheme with fixed contributions and a fully funded scheme based on voluntary savings. The findings have implications for responses to the fiscal and macroeconomic challenges raised by an ageing population.

Keywords: Demographic change; Pension reform; Retirement; Labour supply (search for similar items in EconPapers)
JEL-codes: E21 H55 J21 J26 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-024-09862-9

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