Labour market characteristics and the burden of ageing : North-America versus Europe

A transition from pay-as-you-go pension systems to more private funded systems is often suggested as a solution to finance pension systems threatened by ageing. This paper analyses alternative potential remedies linked to changes in labour market characteristics, within an international computable overlapping-generations model of the world economy. A prolongation of the working life of skilled or unskilled individuals, an increase in the demand for skills, a rise in the education levels and increased skilled or unskilled immigration have very different outcomes in North- America and in Europe. In the latter region, a postponement in the retirement age of unskilled individuals has the most beneficial effect in relieving the fiscal pressure on pension systems, because the proportion of unskilled workers is relatively larger in Europe than in North-America. In North-America, where skilled labour is more abundant, an acceleration in skill-biased technical change has the biggest impact on pensions systems, as it raises the productivity of skilled workers.