Early Retirement and Financial Incentives: Differences between High and Low Wage Earners
CPB Netherlands Bureau of Economic Policy Research; Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)
University of Padua - Department of Economics and Management
December 1, 2011
Netspar Discussion Paper No. 12/2011-105
This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ two identification strategies to test the predictions. First, we exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. Second, we employ a regression discontinuity design by comparing workers who are eligible and non-eligible to the transitional scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. The results imply that low wage earners will experience a stronger incentive to continue working in an optimal early retirement scheme.
Number of Pages in PDF File: 31
Keywords: pensions, early retirement, labour market behaviour
JEL Classification: J16, J22, J61
Date posted: December 24, 2011
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