Unemployment and Retirement in a Model with Age-specific Heterogeneity

This paper presents a model where young and old workers compete for one type of jobs in the presence of retirement opportunity. Within this framework, we show that increased retirement opportunities (such as a decrease of the retirement age) has most of the time a depressing impact on the unemployment rate. Indeed the number of vacancies posted by firms is influenced by the probability that an old worker is going into retirement. We show that the degree to which younger workers are influenced by retirement of older workers depends on the relative productivity of young and older workers. It is only when older workers are much more productive than young workers that retirement may benefit to unemployment.