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| Delayed Retirement, Endogenous Fertility, and Pensions |
| GENG Zhixiang, SUN Qixiang
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| School of Economics and Management, Ningbo National Insurance Development Institute, Wuhan University; School of Economics, Peking University |
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Abstract Many countries are considering or have implemented delayed retirement policies because of the increased pressure on pension plans and declining labor supply as a result of aging populations. Raising the retirement age will force people to work longer, and thus older adults will have less leisure time. Consequently, people may reduce their savings due to the postponement of retirement. In other words, their disposable income will increase, which may encourage them to have more children. In addition, if people make decisions about consumption, savings, and childbearing in early adulthood based on their anticipated lifetime income, the increase in future wage income brought about by delayed retirement will increase discounted current income, which may lead families to have more children. Therefore, delayed retirement may increase the fertility rate. An increase in the fertility rate will affect the future labor supply, which will in turn affect the pension replacement rate of retirees and pension benefits after retirement. In addition, delayed retirement will extend the period of pension contributions, which will also affect the pension replacement rate and pension benefits. Delayed retirement can also affect physical and human capital accumulation, thereby affecting wage income, which will in turn affect the pension replacement rate and pension benefits for retirees. How exactly does delayed retirement affect the pension replacement rate and individual pension benefits？ This is a topic of great concern at present. Therefore, it is necessary to study the effects of delayed retirement on the fertility rate, pension replacement rate, and pension benefits.
Based on the OLG model of endogenous fertility, this paper studies the effects of raising the statutory retirement age on the fertility rate, pension replacement rate, and pension benefits after retirement from a micro-economic perspective. It shows that (1) delayed retirement will increase the fertility rate in equilibrium, but the magnitude will be very limited, and that (2) increased fertility will increase the labor supply, improve the pension replacement rate, and increase pension benefits. It will cause these effects by extending the period of pension contributions. At the same time, it will decrease preventive savings, capital accumulation, real wages, and pension benefits. Consequently, delaying the retirement age will increase the pension replacement rate. When the output elasticity of capital is greater than or equal to 0.5, pension benefits will decrease at retirement age. When the output elasticity of capital is less than 0.5, pension benefits will increase at retirement age if the average life expectancy is higher or the proportion of pension contributions is higher; otherwise, they will decrease at retirement age.
Furthermore, this paper extends its model to incorporate human capital. Numerical simulations show that whether individuals' desire for more children is greater than or less than their desire for the quality of children on the balanced growth path, delayed retirement will increase the fertility and pension replacement rate in equilibrium. This conclusion is robust. This study will enrich the research on the effects of delayed retirement on the fertility and pension replacement rates.
This paper analyzes the micro-influence mechanism of delayed retirement on the fertility rate, pension replacement rate, and pension benefits from the perspective of physical and human capital accumulation, which will enrich the literature by providing a micro-foundation for quantitative calculations in related studies. In terms of policy implications, this paper shows that reducing fertility costs can increase the fertility rate. Finally, it proposes some policy measures.
In the next few years, China will progressively implement a policy of raising the retirement age. However, this policy may conflict with the increasing burden of childcare, which will have a major impact on intergenerational time transfer. Future research can study the micro-mechanism of delayed retirement on the fertility rate, pension replacement rate, and pension benefits from the perspective of grandparents' future childcare responsibilities.
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Received: 30 November 2018
Published: 10 June 2020
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