A life-cycle analysis of ending mandatory retirement

In this paper a life-cycle model is constructed to study the macroeconomic effects and welfare implications associated with eliminating mandatory retirement. Our short run analysis reveals that changes in welfare during the transition depend on the dynamic nature of the wage rate adjustment process. We distinguish between transitions in which the wage rate clears the labor market and transitions with a sticky wage and youth unemployment. We also examine political feasibility by measuring the popular support that this type of policy might have under the two labor market scenarios. Finally, we identify the effects that the policy has on welfare in the long run.