FIGURE 5-13 Response to the 1979 Post-Employment Wage reform in Denmark. SOURCE: Gruber, Milligan, and Wise (2009).
Gruber, Milligan, and Wise (2009) cite similar natural experiments for other countries that reveal the same thing. Several additional methods have been used to assess the relationship between the employment of the young and the old. In short, natural experiments and other methods of analysis all lead to the same conclusion and “provide no support for the boxed economy proposition. Indeed, the weight of the evidence suggests that increasing the employment of older persons provides more job opportunities for younger persons and reduces the unemployment rate of younger persons.” (Gruber, Milligan, and Wise, 2009, p. 64). The finding is consistent with earlier work showing that older and younger workers are actually complements, not substitutes (Levine and Mitchell, 1988).
Private DB Pension Plans Offer Large Incentive Effects to Retire Early
The social security retirement incentives described above result from the way in which the social security DB is determined in each country. Employer-provided DB pension plans typically have similar retirement incentives. DB pension plans are still common in the United States and are particularly important for state and local government employees, even as the proportion of employees covered by personal retirement plans such as 401(k) plans is rising rapidly. DB plans are also common in Canada and in the United Kingdom, and they underpin the employer-based system in the Netherlands. Thus, in some countries the incentive effects inherent in these plans can also have a large effect on labor force participation (Stock and Wise, 1990a and 1990b; Gustman and Steinmeier, 2002).