Labor market effects of progressive contributions and degressive accrual

In this topicality project we are interested in the labor market effects of progressive pension premiums and decreasing pension accumulation rates, as an alternative for the Dutch system of age independent premiums and accumulation rates. We aim at gaining insight in how these will change wage costs, demand, and supply of older and younger workers.

This implies that we need to know labor supply and labor demand elasticities for younger and older workers.

For the wage and pension accumulation elasticities of labor supply, we will use the existing literature. Much is known about the sensitivity of labor supply for net wages. Much less is known on whether workers in the Netherlands see pension contributions as a tax or as delayed earnings. This depends on their time preferences, present bias, trust in the pension system, and the complexity of the pension arrangement (the perceived link between the premium which is paid and the expected benefit). The literature will provide us with a range of possible sensitivities of labor supply for the pension parameters.

We will use a vignettes experiment to estimate labor demand elasticities, asking survey questions in an online panel to employers and others who are involved with recruiting in their organization. We distinguish between younger and older employees, accounting for differences in demand elasticities by age group). Specifically, the vignettes will be used to analyze the sensitivity of labor demand for younger and older workers for labor costs, such as pension premiums. They can also be used to analyze the extent to which older and younger workers are substitutes.

We will make explicit how the costs of employees change due to their aging. The rising costs may effect recruitment of older and younger workers and may determine the duration of the labor contract. They can also affect the workers who are already there and we will therefore also look at the influence of pension costs on firing policy.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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