“In this study, I open what is often seen as a ‘black box’: what happens inside firms when older
workers retire later, and career ladders become more crowded,” says Sona Badalyan, EPoS
Economic Research Center. “According to my results, raising the pension claiming age changes how
opportunities are allocated within firms. As older workers delay retirement, hiring and promotion
opportunities become scarcer for some workers, while others may benefit from knowledge and
productivity spillovers from experienced colleagues.”
Crowded career ladders
Keeping older workers employed longer can delay hiring and promotion opportunities for
coworkers who compete for similar positions within firms. “The strongest barriers to career
advancement are observed among workers who are closest to older employees on internal career
ladders, such as middle-aged workers,” says Sona Badalyan. “The findings suggest that employers
need to pay greater attention to career development and advancement opportunities when
retirement ages increase.”
Benefits for coworkers in different teams
At the same time, delayed retirement can also generate benefits for firms and coworkers. Experienced
employees possess valuable firm-specific knowledge and expertise. This helps firms avoid the costs
associated with replacing skilled workers and may improve the performance of colleagues who work in
complementary roles. The findings suggest that raising the retirement age creates both costs and
benefits within firms, depending on how workers interact with one another and how valuable older
workers’ skills are to firms.
“Policymakers should consider the broader labor-market consequences of retirement reforms, not
only their effects on pension finances,” says Sona Badalyan. “Without accounting for the effects on
internal career ladders, the costs and benefits of raising the retirement age cannot be fully assessed.”
About the study
The German pension reform of 1999 increased women’s pension claiming age by at least three years
by aligning it with that of men. This represented one of the largest increases in pensionable retirement
age between neighboring birth cohorts in Germany, creating a unique setting to study how delayed
retirement affects workplaces. The strongest barriers to career advancement are observed among
female coworkers, partly due to industrial and occupational segregation in Germany. However, the
underlying mechanisms, such as competition for positions and career ladders, are not specific to
women. Similar effects would therefore be expected whenever delayed retirement increases
competition for advancement opportunities, regardless of gender.