In this paper, we explore the links between pension reform, early retirement, and the use of
unemployment as an alternative pathway to retirement. We use a dynamic rational expectations
model to analyze the search and retirement behaviour of employed and unemployed workers aged
50 or over. The model is calibrated to reproduce the main reemployment and retirement patterns
observed between 2002 and 2008 in Spain. It is subsequently used to analyze the effects of the
2011 pension reform in Spain, ...
In this paper, we explore the links between pension reform, early retirement, and the use of
unemployment as an alternative pathway to retirement. We use a dynamic rational expectations
model to analyze the search and retirement behaviour of employed and unemployed workers aged
50 or over. The model is calibrated to reproduce the main reemployment and retirement patterns
observed between 2002 and 2008 in Spain. It is subsequently used to analyze the effects of the
2011 pension reform in Spain, characterized by two-year delays in both the early and the normal
retirement ages. We find that this reform generates large increases in labour supply and sizable cuts
in pension costs, but these are achieved at the expense of very large welfare losses, especially among
unemployed workers. As an alternative, we propose leaving the early retirement age unchanged,
but penalizing the minimum pension (reducing its generosity in parallel to the cuts imposed on
individual pension benefits, and making it more actuarially fair with age). This alternative reform
strikes a better balance between individual welfare and labour supply stimulus.
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