Scandinavian Working Papers in Economics

Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

No 1/2009: Labour supply and retirement policy in an overlapping generations model with stochastic fertility

Ole Hagen Jørgensen and Svend E. Hougaard Jensen
Additional contact information
Ole Hagen Jørgensen: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Svend E. Hougaard Jensen: CEBR, Postal: Copenhagen Business School, Porcelaenshaven 16A, DK-2000 Frederiksberg

Abstract: Using a stochastic general equilibrium model with overlapping generations, this paper studies a policy rule for the retirement age aiming at offsetting the effects on the supply of labour following fertility changes. We find that the retirement age should increase more than proportionally to the direct fall in the labour supply caused by a fall in fertility. The robustness of this result is checked against alternative model specifications and parameter values. The efficacy of the policy rule depends crucially on the link between the preference for leisure and the response of the intensive margin of labour supply to changes in the statutory retirement age.

Keywords: Labour supply; fertility; retirement age; overlapping generations; method of undetermined coefficients

JEL-codes: D91; E20; H55; J10; J26

19 pages, January 1, 2009

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