THE EFFECTS OF EARLY RETIREMENT ON YOUTH EMPLOYMENT

by the Sandwichman

This is just bizarre:

The idea that forcing elderly workers out of the labor market before the statutory age of retirement would provide jobs for the unemployed young has been for a long time widely accepted in several European countries, particularly in Belgium where indeed youth unemployment is particularly high both in absolute and in relative terms. For most economists and fortunately an increasing number of Belgian this view is based on the erroneous belief in a fixed amount of work. Economists call this allegedly widespread view the "lump of labor fallacy".

No, the rationales I've heard for early retirement usually had to do with workforce reduction. Since layoffs would primarily affect the most recently hired -- and among them younger people -- the option of early retirement would thus presumably provide an alternative to layoffs, not a bonanza of job openings. The second rationale I've heard, though, does have to do with opening places for advancement of younger staff who otherwise have nowhere to go on the promotion ladder. So this early retirement business was not about some "erroneous belief in a fixed amount of work" but about coping with a declining amount of jobs or advancement possibilities in particular organizations.

I don't know if early retirement is an effective method for reducing a workforce while avoiding layoffs of workers without seniority. I would assume it depends on how it is implemented. But what is the point of assigning it some other purported purpose and then finding it didn't achieve something it was never expected to do?

Admittedly, the authors did cite a Belgian program that existed from 1983 to 1991 and that allowed a 5-year relaxation of the retirement age, without reduction of benefits, if the employer commited to replacing the retiree with an unemployed person receiving unemployment insurance. Such a program sounds like a bureaucratic nightmare but it wouldn't assume a fixed amount of work; it would prescribe a tit for tat. Some anti-dismissal legislation also allowed firms to lay off older workers provided they hired unemployed people collecting benefits. Same story. With only the authors' second-hand account to go on, those provisions sound more like loopholes with fig leafs than they do legitimate job creation strategies.

Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work. Yet it is too convenient to yield the burden of the proof on the advocates of the lump of labor fallacy. In our study we want to show that preretirement to make room for the young didn't work.

This is even more bizarre: if those who make the claim offer no evidence... CASE DISMISSED. If there's no evidence for the claim, there's no point in showing that a policy that, as far as we know, WASN'T based on the supposed belief may or may not have worked in accordance with that non-existent belief. If there's no evidence that X killed Y, there's no point to proving (or disproving) that it was in self defense.

© 2008 International Monetary Fund WP/08/30
IMF Working Paper
Fiscal Affairs Department
The Effects of Early Retirement on Youth Unemployment: The Case of Belgium
Prepared by Alain Jousten, M. Lefèbvre, S. Perelman and P. Pestieau1
Authorized for distribution by Isaias Coelho
February 2008
This Working Paper should not be reported as representing the views of the IMF.

Well, I'm glad to hear that. I wonder, though, if there isn't some minimum level of coherence that an argument should attain before being distributed by the International Monetary Fund? I mean, if those who make the claim offer no evidence, what is the point of proceeding (other than to lend spurious credence to a claim for which no evidence has been offered)?

To be perfectly clear, Sandwichman doesn't much like the idea of early retirement and doesn't see it as a feasible strategy for re-assigning jobs. But that lack of enthusiasm has nothing to do with anyone else's supposed assumptions about a fixed amount of work.

BUT the positive side to this dumb paper is the sentence, "Those who make the fallacy claim fail to offer specific evidence of the supposed belief in a fixed amount of work." That's a paraphrase of what the Sandwichman has been saying for 10 years! Some reviewer of the paper probably questioned the authors about evidence for the fallacy claim and they put that in as a "qualifying phrase" rather than throw out the whole paper just because it was based on a chimera.