Age Before Beauty? Productivity and Work vs. Seniority and Early Retirement

We show how the age prole of earnings, retirement rules and retirement behavior are tightly linked through the general equilibrium of the economy. Generous Social Security benets nanced by large Social Security taxes discourage human capital accumulation. In Social Security systems where Social Security benets prioritize redistribution less productive workers with lower levels of human capital tend to retire earlier. These out ows of workers from the labor force tend to generate wage proles that are monotonically increasing over age and labor markets that display larger seniority premia. This paper theoretically rationalizes the links between retirement rules and the wage structures over the life cycle and uses data on European countries to show how social security taxes, the age prole of earnings, and retirement behavior are related.