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Ageing workforce and productivity: the unintended effects of retirement regulation in Italy

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Abstract

Making use of the quasi-natural experimental setting provided by the unexpected and sudden change in Italian retirement legislation at the end of 2011 (Fornero law), this article estimates the effect on productivity of a reduction of sorting mechanisms among older workers. The estimation uses provincial-level data. The increase of retirement age and restrictions on early retirement plans locked older employees into the workplace with a negative impact on productivity. Assessing the sorting effect contributes to the age-productivity debate, isolating more precisely the average effect of ageing on productivity.

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Fig. 1

Source: Our elaborations based on the ISTAT labour force survey

Fig. 2

Source: ISTAT labour force survey

Fig. 3
Fig. 4

Source: Our elaborations based on the ISTAT labour force survey

Fig. 5

Source: ISTAT

Fig. 6

Source: Our elaborations based on the ISTAT labour force survey

Fig. 7

Source: INPS

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Notes

  1. A more precise description of the NDC system is provided in Sect. 3.

  2. In this review, we leave aside the debate on the relationship between an ageing population and growth. The ‘secular stagnation’ view is well represented by Robert Gordon’s (2016) book, which identifies demographic changes as being among the main causes of slowdown in the developed world. In contrast, Acemoglu (2016) and Acemoglu and Restrepo (2017) support the view that labour shortages can encourage innovation. If, according to this second view, an ageing population has the twofold effect of decreasing labour force and increasing innovation, it is possible that ageing goes on hand with increased total factor productivity (TFP) (and growth). We do not enter into this debate because what matters in this stream of literature is labour scarcity, not specially ageing. Innovation driven by labour scarcity would affect productivity of the entire labour force, while our concern is the productivity of older workers.

  3. We are grateful to our anonymous reviewer to have highlighted this counterbalancing effect.

  4. The retirement age of independent workers was slightly different.

  5. Bertoni and Brunello (2017) similarly use provincial and regional data to assess the effect of the raised retirement age on young employment: they exploit the fact that minimal retirement age is set at the national level, but the impact of national changes on the number of employees non eligible to retire varies across local areas.

  6. Sample weights have been provided by ISTAT.

  7. Following previous research (Feyer 2007; Ayar et al. 2016) an IV approach was also attempted by instrumenting each province’s share of the workforce aged 55 or older with the population share of those aged 45–64 10 years previously. Tests of the validity of the instrument suggested abandoning this approach.

  8. The use of the Fornero law as a quasi-natural experiment, justified by the unanticipated approval and immediate application of the new regulation, was suggested by Boeri, Garibaldi and Moen (2016).

  9. A similar econometric strategy can be found in Guadalupe and Wulf (2010). They analyse the effect of the 1989 Canada–US Free Trade Agreement on firms’ organizational flattening. Their variable of interest is zero before 1989 and assumes the value of the average level of tariffs on Canadian imports in the industry pre-1989 (their degree of exposure of each statistical unit to the institutional discontinuity).

  10. Note that all Italian provinces have been exposed to the discontinuity identified by the new law.

  11. The same compulsory retirement age can be, in this regard, reconsidered.

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Acknowledgements

The research has been supported by a joint project of the University of Trento and the Provincia Autonoma di Trento.

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Authors and Affiliations

  1. Department of Economics and Management, University of Trento, Via Inama 5, 38122, Trento, Italy

    Roberto Gabriele, Enrico Tundis & Enrico Zaninotto

  2. Istituto di Statistica della Provincia Autonoma di Trento (ISPAT), Trento, Italy

    Enrico Tundis

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  1. Roberto Gabriele
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Correspondence to Enrico Tundis.

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Gabriele, R., Tundis, E. & Zaninotto, E. Ageing workforce and productivity: the unintended effects of retirement regulation in Italy. Econ Polit 35, 163–182 (2018). https://doi.org/10.1007/s40888-017-0079-x

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