Early Retirement and Employment of the Young in Germany

Abstract

Early retirement in Germany is very costly and amplifies the burden that the German public pension system has to carry due to population aging. The fundamental decision to adjust the length of working life to the increased total life span has been confronted with the argument that raising the retirement age would lead to higher unemployment among the young, and it continues to be watered down. This chapter presents the relationship between retirement policy and employment of the young. It shows that the German data provide no evidence for the belief that older workers take jobs away from the young and uses various pension design changes in Germany as instruments to identify how higher or lower employment of older individuals has affected the employment of the young. Most of the coefficients indicate a positive relationship. Adding controls to the specification reduces the effects of elderly employment in general. Since costs for early retirement increase total labor compensation of the young, thus making their labor more expensive, it should not come as a surprise that early retirement for the old causes less employment of the young.

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