Pension Reforms and Personnel Decisions

Abstract

While the empirical literature on the effects of pension reform on workers is broad, less is known about the impact on employers. Yet reforms that create incentives to postpone retirement may affect employer labor demand and labor costs, especially in settings where there are strict legal protections against age discrimination in employment. We examine whether the differential impact of pension reform leads to differences in the incidence of workforce downsizing and hiring. When looking at hiring, we find that firms with larger shares of older workers decrease overall hiring. However, they have an increase in the shares of newly hired older workers. Results on downsizing are mixed, yet all are very small and statistically insignificant. This may be due to strong work protections in place in Germany.