Labor Market Effects of the Early Retirement Age

Day Manoli, Department of Economics, UT-Austin, will be presenting "Labor Market Effects of the Early Retirement Age" on Thursday, February 7 as part of the Demography Workshop.

This paper presents empirical evidence on the effects of increasing the Early Retirement Age on individuals' labor supply. We examine the impacts of two pension reforms in Austria in 2000 and 2004 that increased the Early Retirement Ages (ERAs) for men and women. The empirical analysis uses administrative, matched employer-employee data covering the private sector in Austria. This data allows us to distinguish between two retirement-related outcomes: pension claims and job exits. Nonparametric graphical evidence indicates the following results. First, men and women delay their pension claims and job exits in response to the increased ERAs. Second, there is little evidence of substitution to disability insurance or unemployment insurance as alternative pathways into retirement. Third, there is little distinction between short-run and long-run labor supply responses to the increased ERAs; the labor supply responses of cohorts immediately following the reforms are similar to those of cohorts roughly 5 years after the reforms. Fourth, there is evidence of spillover effects as individuals who are exempt the increased ERAs also delay their retirements. Based on these responses and the changes in financial incentives from the pension reforms, we estimate lower bounds of extensive margin labor supply elasticities. The results indicate lower bounds of roughly 0.30 for men and 0.10 for women.

The weekly Demography Workshop series is held every Thursday from 12:00 – 1:20 p.m. at NORC at the University of Chicago in seminar room 232/233, located in the Harris School of Public Policy Studies at 1155 East 60th Street.

For more information on the Demography Workshop series, visit the Population Research Center site.