Research Paper NEUJOBS Working Papers D10.10
Increasing the retirement age to counter population aging? Evidence from the EU27
Population ageing stemming from higher life expectancy and lower fertility is the most severe shock that is expected to hit European labor markets over next 15-20 years. This will induce fiscal stress, especially in countries with generous welfare systems. We examine the effectiveness of the most obvious policy response to the expected demographic changes, that is increasing the statutory retirement age. Using projections of labor supply and labor demand for 2030, we simulate the fiscal effects of such policy reforms for 27 EU countries. We show that raising retirement age in line with projected increases in life expectancy can offset negative fiscal effects from population ageing assuming constant (real) wages. However, wage responses to these labor supply shocks can moderate or even reverse these gains and, hence, highlight the crucial role of labor markets.