Workforce Aging, Pension Reforms, and Firm Outcomes

Raising statutory retirement ages has been a popular policy to increase the labor supply of older workers in the face of population aging. In this paper, we quantify the effect of a sharp and unexpected increase in retirement ages on firms’ input mix and economic outcomes using Italian administrative and survey data on employment, wages, value added and capital. Exploiting information on lifetime pension contributions for the universe of employees, we are able to quantify the extra number of older workers employed by each firm as a result of the reform. We find that a 10 per cent increase in older workers implies a rise in employment of young and middle-aged workers of 1.8 per cent and 1.3 per cent, respectively. Total labor costs and value added increase broadly in line with employment, with little impact on labor productivity and unit labor costs. These results suggest older workers are valuable to employers and that pension reforms postponing retirement can remove a constraint rather than place a burden on firms.