at older ages would reduce employment among younger people. Here the committee refers to this claim as the “fixed number of jobs” assumption,5 drawing on the International Social Security Project for evidence on whether more work by older people reduces job opportunities for younger people.
At first glance, it seems clear that the number of jobs in economies is not fixed. “The flow of women into the labor force in the past few decades has increased the size of the labor force enormously in many countries. For example, the number of women in the labor force in the United Stated increased by almost 48 million between 1960 and 2007, from about 34 to 46 percent of the labor force. But the employment rate of men changed little as the proportion of women employed increased.” (Gruber, Milligan, and Wise, 2009, p. 7)
The International Social Security Project considered several different ways of assessing the relationship between the employment of the old and the young. The various estimation methods yielded very consistent results and found no evidence that lowering employment among older people would generate more employment opportunities for younger people. Further, there was no indication that an increase in the employment rate for older people reduces employment opportunities for younger people. For example, Figure 5-12 is the same as Figure 5-11, except that it also shows the unemployment rate of youth aged 20–24 (based on data for an approximately 15-year period centered on 1995).
If the incentives that reduced the share of older people in the labor force were to increase employment opportunities for younger people, it seems likely that the tax force to retire would be related to the employment rate of younger people. That is, a greater tax force to retire should correlate with lower youth unemployment. In fact, however, there is a positive relationship between the tax force to retire and the unemployment of young men across countries. The greater the tax force to retire, the greater is youth unemployment. Further, a greater tax force to retire is associated with a lower youth employment rate. These findings offer no evidence to support the proposition that encouraging older people to leave the labor force frees up jobs for younger people.
A second way to assess the relationship between the employment of the old and the young is to consider within-country “natural experiment” estimates of this relationship. In some cases, one can compare employment trends for younger and older workers that preceded a social security reform with trends after the reform and assess (1) the impact of the reform on the
5This is often referred to by economists as the “lump of labor” theory. It was termed the “boxed economy” view in the International Social Security Project. Taken literally, this theory posits that if one additional older worker is employed, one younger worker has to be displaced. This implies that economies are boxed and that the size of the box cannot change.