As the population ages there is growing concern about keeping older workers in the labor market. While older workers traditionally suffer lower unemployment, they tend to suffer longer unemployment spells, often leaving the labor market permanently after becoming unemployed. There are many different reasons for this: declining skills and productivity, failing health, higher reservation wages, and the economic ability to retire early. It is also possible that higher pension contributions for older workers encourage labor market discrimination, particularly in countries like Switzerland, where pension contributions are a full 18% of salary at the close of one’s career compared to just 7% at the start.

In this sub-project we test whether higher pension contributions decrease the probability of reemployment and decrease wages. We take advantage of policy changes that took place in 2005 in women’s pension mandatory contributions: a two-point decline in mandatory occupational pension contributions for women ages 32-34, 42-44, and 52-54.

Early results suggest that indeed, the women whose mandatory pensions declined had a statistically significant larger increase in their chances of leaving unemployment than women just slightly older or younger whose contributions remained constant. In other words: higher pension contributions seem to make it harder to find a job. That said, the results show that the magnitude of these effects were small. If we extrapolate from the measured effects, assuming that the effect of the 2% change in contributions would be linear (double the size for a 4% change), and we forecast a scenario in which everyone paid a 10% pension contribution, the gap in reemployment between young workers (25-34) and prime age workers (35-44) would essentially disappear, but the gap for older workers (45-61) would still remain substantial, as illustrated in the figure below, showing the proportion of workers remaining on unemployment insurance over time under the current and hypothetical scenarios. Much more analysis is necessary but so far, we can say it seems that flat pension contributions would be a solid policy change, but we should not expect it to take care of all or even most of the problem.