Thematic Focal Person: Michael Kuhn
Overall vision
Population ageing, caused by decreasing fertility and increasing survival to older ages, as well as the ageing of the baby boom generation in developed countries, will imply a pronounced change in the age and educational composition of the workforce. Imperfect substitutability of workers at different ages and across different educational groups, together with technological progress and increasing demand for educated workers, are key factors explaining the relations between demographic change and labor market outcomes. We will study how educational and labor market policies will need to adjust to these demographic challenges.
Specific work plans for mid-2011 to mid-2013
Longevity, Retirement, Education and Health
An increasing share of elderly, dependent people, will soon face a declining and ageing workforce in most European countries. To sustain the current social welfare systems an adjustment of the pension system will be necessary. Though numerous simulation studies have estimated the necessary pension system adjustments based on demographic projections, we still lack in depth knowledge of how retirement decisions are connected to longevity, education, and health at the individual level, within the institutional framework of existing social security systems. This knowledge is required to understand whether the recent pension reforms will induce people to adapt their retirement behavior accordingly.
We will formulate and analyze a class of life-cycle models that allow for endogenous retirement decisions in parallel with endogenous decisions on health and educational investment. We will confront these models with specific pension reform options. Investment in health and education may induce a decline in the disutility of work and consequently postpone the optimal age of retirement at the individual level. This effect may be reinforced by the longer lifespan that results from increased health and educational investment. However, these positive effects might not materialize if the pension system or/and the capital markets are characterized by market imperfections that bias the returns to individual investment in health and education.
This project is part of the LEPAS (Long Run Economic Policy of an Ageing Society) project financed by the EU, which started in 2010 and runs for three years. Research on this topic will continue.
Optimal dynamic labor demand and human capital investment
To understand the demand for quantity and quality of labor it is important to move to the firm level. The question is then how firms will react in their hiring and firing strategies to the expected change in labor supply that is caused by demographic change. To understand this process, we will extend labor demand models to allow for imperfect substitutability across the age and education structure of employees in the production process.
In particular, we intend to address the following questions: under which conditions will it be optimal for firms to hire more older workers? What will the optimal age structure of the labor force look like? Will firms increase their investment in firm-specific human capital in accordance with the optimal age structure of hiring/firing?
Productivity, Wages and Training in Ageing Societies
To preserve economic growth and hence the sustainability of the welfare system, productivity growth must be sustained. In addition to technological progress, human capital investment, economic structure, and related factors, the age structure of the workforce has an important impact on economic productivity. The question arises whether an ageing workforce might hamper economic productivity and therefore increase the “demographic burden” (the relation between retired and working persons) even further.
To disentangle the relationship between economic productivity and the age structure of the workforce, we follow mainstream literature that argues that the firm level constitutes one of the most promising levels of analysis because it controls for the structural constraints that confront the workforce. We base our study on a recently created panel data set of matched employer-employee data for Austria that became available in September 2008. Currently, the dataset covers the years 2002-2005.
We use these data to investigate whether a higher share of older workers negatively affects firm-level productivity in Austria. We, furthermore, contrast the age-productivity profile with the age-wage profile at the firm level. Another objective is to test whether the age¬productivity relation changes when we control for training at the firm level. In addition, we investigate who gains most from training by investigating the effect of training on firm-level productivity versus its effect on the wage sum.
This project is part of a two year-old FWF (Austrian Science Fund) project. Research on this topic will continue.
