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constraints. However, in the initial period, the increasing number of younger
populations associated with new immigrants drives the asset Gini coefficient
down, reflecting the reduced gap of the aggregate asset between middle-aged
wealthy population and the younger, poor population.
The welfare effects of the immigration derived from the simulation results reveal
that the current young populations appear to be big gainers of the favorable immigra-
tion policy
5
. The rationale for this is that even with the wage declines in the initial
period, the prospect of higher disposable income for the rest of their lives obtained by
both increased interest rates and reduced social security tax outweighs the negative
effect from the wage loss. This is good news for current young generations. However,
unlike the assumption of this model, if more immigrants fail to adapt to conditions in
the host region's labor market, and thus, remain lower skilled workers, then immi-
gration cannot make a sufficient contribution to increasing tax contributions.
11.3.3 How Does a Change in Retirement Age Affect a Regional
Economy?
The final part of the analysis considers the impact of changes in the retirement age.
Recall that it was fixed at 65 but the flexibility afforded by an absence of
requirements to retire at this age is generating longer attachments to the labor
force. Does this have much of an impact on a regional economy?
If the worker learns that he/she will live longer than previously expected, he/she
would consume less or work longer before retirement to finance the additional
consumption expenditure during their extended lifetime. In this model, even the
maximum lifetime is limited to the age of 85, the average expected lifetime is
assumed to increase due to the lower probability of death under an ageing popula-
tion. Thus, the optimal behavior of each individual under an ageing population
should be similar to that of the situation where an individual lives longer. However,
an individual is not likely to choose smaller consumption because it could hurt
his/her welfare; instead, he/she will continue to work, if possible, beyond the initial
retirement age, so that he/she could adjust income in proportion to increased life
expectancy, which would then allow the same amount of consumption as before. In
this respect, increasing the retirement age can be considered as an alternative policy
measures to compensate for the loss of labor supply under an ageing population.
Moreover, since increasing the time spent working is equivalent to a delay in the
age of initial social security benefit receipts, it might contribute to lessen the
government's fiscal burden from public social security pension system. To some
extent, the increase in the age at which recipients can receive the full social security
benefits reflects a policy decision that derives from longer labor force attachment
and the fact that people are living longer post retirement.
5
The welfare benefit is measured by a consumption equivalent variation (EV), which computes the
consumption change required to keep the expected utility in the initial condition equal to that
achieved in the new condition under immigration policies [see Park and Hewings (
2009
)].
