Increased longevity and social security reform: questioning the optimality of individual accounts when education matters

Abstract

In many European countries, population aging had led to debate about a switch from conventional unfunded public pension systems to notional systems characterized by individual accounts. In this article, we develop an overlapping generations model in which endogenous growth is based on an accumulation of knowledge driven by the proportion of skilled workers and by the time they have spent in training. In such a framework, we show that conventional pension systems, contrary to notional systems, can enhance economic growth by linking bene…ts only to the partial earnings history. Thus, to ensure economic growth, the optimal adjustment to increased longevity could consist in increasing the size of existing retirement systems rather than switching to notional systems.

The Impact of Reducing the Pension Generosity on Inequality and Schooling

“…In the first period, individuals survive with probability one, they choose their consumption level c and whether to become skilled workers ( e s ) or to stay unskilled ( e u ). Assume the effort of attending school has utility cost ∈ ℝ and differs across individuals (Oreopoulos 2007;Restuccia and Vandenbroucke 2013;Le Garrec 2015;Sanchez-Romero et al 2016). If > 0 individuals incur a cost by making the effort to continue schooling.…”

“…Assumption 2 implies that our model provides the same result as a model with time costs of schooling, see Le Garrec (2015).…”

“…In this paper we study whether a reduction in the replacement rate of pension systems may harm differently short versus long lived individuals and whether schooling will increase or decrease. More specifically we propose a model that extends the work by Pestieau and Ponthiere (2016) by introducing heterogeneity in schooling effort, similar to Le Garrec (2015), which endogenously leads to different skill groups in the total population. Higher skill groups are characterized by higher survival and higher levels of income.…”

Differential mortality, aging and social security: delaying the retirement age when educational spillovers matter

“…It predicts accurately that individuals with higher abilities will invest more in human capital and therefore will have steeper age-earnings profiles than their counterparts with lower abilities. The model we develop is an extended version of the Ben-Porath model (1967) introducing heterogeneity in learning ability in the spirit of Cahuc and Michel (1996) and Le Garrec (2012, 2015) allowing for an endogenous unskilled/skilled workers structure. Following Rauch (1993) and Moretti (2004) who have pointed out that productivity was positively impacted by the proportion of skilled workers through the sharing of ideas, we can then study the impact of delaying the retirement age whether educational spillovers matter or not 1 .…”

The Multidimensional Efficiency of Pension System: Definition and Measurement in Cross-Country Studies

“…Authors usually discuss many factors influencing the efficiency of pension system and the influence of pension system on the efficiency of the economy and labour market (e.g. Barr 1987 ; Hayek 1960 ; Boldrin and Montes 2009 ; Breyer and Kolmar 2002 ; Fenge and von Weizsäcker 2010 ; Le Garrec 2014 ). Such an approach is usually embedded in an overlapping generations model (OLG) and enables searching for the optimal parameters of a pension system, or simulating some changes of these parameters and their impact on the economy or labour market.…”