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Labour market participation of ageing workers. Micro-financial incentives and policy considerations

Allard Bruinshoofd () and Sybille G. Grob

DNB Occasional Studies from Netherlands Central Bank, Research Department

Abstract: The Netherlands is ageing. The proportion of Dutch citizens aged 65 or older, expressed as a percentage of all Dutch residents in the 20-65 age bracket - the so-termed grey burden - currently stands at about 22. Expectations are that this number will at least double in the next few decades. This study focuses on the issue of how to increase the labour supply of older Dutch workers as a means to absorb the growing grey burden. Of key importance is whether changes in the design of pension provisions will induce people to work longer. The main results are summarised as follows. In the first place, we demonstrate that for the Netherlands much is to be gained in terms of economic growth from the stimulation of labour market participation by ageing workers. Subsequently, in an international comparison of the institutional design of old-age pensions we show that financial incentives play an important role in labour market participation of older workers. This outcome is corroborated by a survey that we conducted among Dutch households: a large proportion of the Dutch population is sensitive to (financial) stimuli to work longer. In pension provisions, these stimuli may be effected through the level of the eventual (early) retirement pension benefits and the number of years over which a full pension can be accrued. In addition, the survey results demonstrate that the actual moment of retirement is highly dependent on whether or not the level of the pension benefit varies with it. Finally, a large share of the Dutch proves willing to participate in the labour process longer if they can do so on a part-time basis.

Date: 2005-06
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