Impact of Raising the Retirement Age on Firms

Abstract

This paper studies the impact of raising the retirement age on firms. I rely on a policy change in the Netherlands that sharply increased the effective retirement age for workers born after 1950. For every additional retained older worker due to the reform, firms employ 0.6 fewer younger workers and reduce investments by 6,000 EUR annually. Adjustments are concentrated in low free cash flow firms, and only these firms experience declines in revenue and profitability. Lastly, I show that more time to respond to the policy implementation helps firms smooth adjustments and reduce negative profit effects.