Postponing retirement under age discrimination and grandparenting

To tackle the population aging and improve the sustainability of the pension system, the Chinese government proposes to postpone the statutory retirement age gradually. However, when implementing this policy in China, age discrimination in the job market and grandchild care culture are two potential concerns. Therefore, this paper builds a multi-period OLG model with these two crucial factors to provide a quantitative evaluation of the potential policy impacts on population growth, labor supply, and pension funds. The framework allows for endogenous fertility and age-specific grandparenting. Taking an increase in childcare costs as an exogenous input, the model can well predict declining fertility both in level and trend. The results of the counterfactual analysis suggest that postponing retirement alleviates the pressure on the pension system over the next 50 years by reducing the number of retirees and increasing the size of the labor force. However, importantly, a five-year retirement delay could reduce fertility by more than twenty percent, which will affect the size of the labor force decades later and put additional long-run demographic pressure on the pension system. Regarding the intensive margin, postponing retirement will bring an extra flow of labor supply from old workers, while maintaining a comparatively high level of the participation among young generations due to the fertility adjustments. • A novel multi-period OLG model is proposed with endogenous fertility and grandparenting. • Through grandparenting, later retirement indirectly affects future pension contributors. • The multi-period framework captures impact magnitudes under different retirement ages. • The reform will accelerate population aging, but save trillions of pension funds.