Quantifying Policy Tradeoffs to Support Aging Populations

Coping with aging populations is a challenge for most developed countries. The support of non-working adults can create an unsustainable burden on those working. One way of dealing with this is to raise the normal pension age, but this has proven to be unpopular. A complementary approach is to raise the average labor force participation rate. These policies are generally more politically palatable. We conceptualized and estimated, for the first time, the tradeoff between pension age and labor force participation rate policies and show that, in most European countries, a difference in policies that results in an increase in labor force participation rates by an additional one to two percentage points by 2050 can substitute for a one year increase in the normal pension age.

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