NCPA - National Center for Policy Analysis


May 26, 2009

There's no evidence in favor of the common claim that there are a fixed number of jobs into which the young will move when older workers retire.  In fact, researcher's with the National Bureau of Economic Research (NBER) find that generous government retirement benefits, which lead to more retirement by older workers, end up hurting the employment status of younger workers.

By examining the work behavior of the young during periods of sharp policy changes in 12 countries, researchers were able to study the impact of elderly employment on the young:

  • In Germany, for example, 1972 legislation allowed older workers to retire earlier than 65 and to still receive full social security benefits; within four years, the employment rate of people aged 55 to 64 fell seven percentage points.
  • But in 1992, Germany reversed course and phased in lower benefits for early retirement and, effectively, reduced the incentive to leave the labor force.
  • Within nine years, the employment rate of older workers rose 9 percent.
  • Youth employment followed older works in the 1970s, but after the 1990s reform, youth employment stayed the same and unemployment actually fell slightly.
  • The results were essentially the same when the authors controlled for economic growth and other factors and much the same story took place in France and in the United Kingdom.

Moreover, looking across 12 countries, the researchers find that the employment of older and younger workers moves together rather than in opposite directions.  Taken together, these nations saw an increase of 8.1 percent in employment among older workers, youth employment rose 4.7 percent and youth unemployment fell 2.6 percent.

Source: Jonathan Gruber, Kevin Milligan and David A. Wise, "Social Security Programs and Retirement Around the World: The Relationship to Youth Employment, Introduction and Summary," National Bureau of Economic Research, Working Paper, No. 14647, January 2009.

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