"The extent of the demographic changes in Europe is dramatic and will deeply affect future labor, financial
and goods markets. The expected strain on public budgets and especially social security has already
received prominent attention, but aging poses many other economic challenges that threaten growth
and living standards if they remain unaddressed.
This paper focuses on three large Continental European countries: France, Germany, and Italy. These
countries have large pay-as-you-go pension systems and vulnerable labor markets. At the same time,
they show remarkable resistance against pension and labor market reform. While there is no shortage
of reform proposals to address population aging, most of those focused on pension and labor market
reform, little is known about behavioral reactions to such reforms.
This paper therefore sheds light on the potential benefits of pension and labor market reform for growth
and living standards, taking into account behavioral reactions to specific reforms. Which behavioral
reactions will strengthen, which will weaken reform policies? Can Old Europe maintain its standard
of living even if behavioral reactions offset some of the current reform efforts?"

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