The work carried out by the Bank of Italy analyzes the effect of technological progress on decisions to leave the labor market before reaching retirement age. Technological progress affects the phenomenon of early retirement in two opposite ways: on the one hand it increases real wages by producing an incentive to postpone early retirement ("wage effect"); on the other hand, the more technological development induces a rapid erosion of human capital, the more it results in a high recourse to early retirement ("erosion effect"). Through the results of some surveys, the effect of technological progress on early retirements has been examined, noting that when technological change is small, the effect of erosion dominates, while when it is large, the wage effect dominates.
In the work a model was developed which allows to analyze how the effect of technological development on the probability of exit from the labor market is affected by the intensity of the same and by the costs of retraining workers' skills. The model is used to evaluate the relevance of the two mechanisms in various industrial sectors in the United States.
The main findings are as follows: in sectors undergoing strong technological change, the wage effect is dominant, as the opportunity created by higher wages pushes workers to retrain. In sectors subject to slower technological progress, workers instead have no incentive to counteract the obsolescence of their professional knowledge and therefore tend to leave the job market with a higher probability. This evidence is compatible with the existence of on-the-job training and lifelong learning processes, which make the cost of retraining relatively lower in the case of adaptation to more marked technological changes.
The study therefore suggests that the effectiveness of possible legislative interventions aimed at limiting the voluntary abandonment of the labor market by sections of the population close to retirement age depends, among other things, on the professional skills necessary to remain in the sector of specialization and by the speed of technological progress. An increase in the statutory retirement age lengthens the time span over which any retraining would produce positive effects on earnings. For a given level of individual human capital, therefore, this intervention increases the probability that the worker decides to update his skills, postponing his voluntary exit from the labor market.
