Delayed Retirement Policy and Unemployment Rates

Abstract

This paper examines the impact of retirement policy on the unemployment rates for both young and old workers. It employs a labor search framework with a constant elasticity of substitution production function and cross-market matching to investigate the channels through which the delayed retirement policy has impacts. The findings show that through the cross-market matching channel, retirement policy increases the unemployment of young workers (it is ambiguous for old workers) and has a negative effect on the wages of cross-market matched workers. The latter effect is negative for young workers (positive for old workers) through the capital-skill complementarity. The paper calibrates the model to the U.S. data and quantifies the effects of retirement policy during the first decade of this century. Counterfactual experiments highlight the contribution of each channel.