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Future public pensions and changing employment patterns across birth cohorts*

Published online by Cambridge University Press:  12 November 2013

JOHANNES GEYER  and
VIKTOR STEINER
JOHANNES GEYER
Affiliation:
DIW Berlin, Mohrenstr.58, D-10117 Berlin, Germany (e-mail: jgeyer@diw.de)
VIKTOR STEINER
Affiliation:
Freie Universität Berlin, Department of Economics, Boltzmannstr.20, D-14195 Berlin, Germany (e-mail: viktor.steiner@fu-berlin.de)
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Abstract

We analyse the impacts of changing employment patterns and pension reforms on the future level of public pensions across birth cohorts in Germany. The analysis is based on a microsimulation model and a rich data set that combines household survey data from the German Socio-Economic Panel Study (SOEP) and process-produced microdata from the German pension insurance. We account for cohort effects in individual employment and unemployment affecting earnings over the life cycle as well as the differential impact of recent pension reforms. For individuals born between 1937 and 1971, cohort effects vary greatly by region, gender and education, and strongly affect life cycle earnings profiles. The largest effects can be observed for younger cohorts in East Germany and for the low educated. Using simulated life cycle employment and income profiles, we project gross future pensions across cohorts taking into account changing demographics and recent pension reforms. Simulations show that pension levels for East German men and women will fall dramatically among younger birth cohorts, not only because of policy reforms but also due to higher cumulated unemployment. For West German men, the small reduction of average pension levels among younger birth cohorts is mainly driven by the impact of pension reforms, while future pension levels of West German women are increasing or stable due to rising labour market participation of younger birth cohorts.

Keywords

H55J26J11public pensionspension reformemployment patternscohort effects
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 13 , Issue 2 , April 2014 , pp. 172 - 209
Copyright
Copyright © Cambridge University Press 2013 

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Footnotes

*

We thank two anonymous referees and participants at seminars in Berlin, Frankfurt/Main, Nuremberg, and Paris for their helpful comments and suggestions. Support from the Research Network (Forschungsnetzwerk Alterssicherung – FNA) of the German Pension Insurance Fund is gratefully acknowledged.

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