Aging, Labor Markets, and Pension Reform in Austria

This paper investigates the dynamic consequences of demographic change and various pension reform scenarios for Austria. The analysis is based on a computable overlapping-generations model with life-cycle labor supply, savings, and search unemployment. The public sector is decomposed into general government and an unfunded pension system with a tax – benefit linkage. Our quantitative analysis considers several pension reform scenarios on top of the demographic transition in an aging society. We find that lowering the pension replacement rate and increasing the retirement age can have strong labor-market effects. They strengthen the labor supply both with respect to job search intensity, leading to lower unemployment rates, and with respect to hours worked.