The Role of Income Effects in Early Retirement

We provide a long‐term perspective on the individual retirement behavior and on the future of retirement by emphasizing the role of (negative) income effects. We consider a political economic theoretical framework, with actuarially “fair” and “unfair” early retirement schemes, and derive a political equilibrium with positive social security contribution rates and early retirement. A reduction in the wages in youth, consistent with the recent labor market trends since the massive introduction of temporary jobs, induces workers to postpone retirement, and—in the “unfair” system—leads to lower contribution rates. A reduction in the growth rate of the economy has opposite effects on the retirement decisions, leading—in the “unfair” system—to more early retirement. Aging induces a negative income effect, but has also an opposite political effect on social security contributions and retirement decisions. For an actuarially “fair” social security system, we provide conditions for the political effect to dominate; in an “unfair” scheme, numerical simulations confirm a slight predominance of the political effect, as contribution rates increase. These results may shed some light on the future of early retirement in aging societies.     

Financial Markets and Wages

We study a labour market equilibrium model in which firms sign optimal long-term contracts with workers. Firms that are financially constrained offer an increasing wage profile: they pay lower wages today in exchange for higher future wages once they become unconstrained. Because constrained firms grow faster, the model predicts a positive correlation between the growth of wages and the growth of the firm. Under some conditions, the model also generates a positive relation between firm size and wages. Using matched employer–employee data from Finland and the National Longitudinal Survey of Youth for the U.S., we show that the key dynamic properties of the model are supported by the data.     

AN ELEMENTARY PROOF OF ARROW'S IMPOSSIBILITY THEOREM*

This paper deals with a situation where a quantity-setting Coumot firm and a price- setting Bertrand firm coexist in the same industry. Under a set of regularity conditions
on demand and cost, we compute equilibrium prices on Cournot-Bertrand "mixed" duopolies, and compare them with those of "pure"Cournot and Bertrand duopolies.     

The Welfare Effect of Foreign Monetary Conservatism with Nonatomistic Wage Setters

This paper extends the closed‐economy analysis of strategic interaction between labor unions and the monetary authority in Lippi (2003) to a two‐country, open‐economy framework. It sheds light on the real effect of foreign central bank conservatism, which—through a strategic mechanism that operates via the terms of trade between the two independent monetary policymakers—entails wage moderation. The impact of domestic central bank conservatism hinges instead on the combination of three strategic effects.