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Early Retirement and Financial Incentives: Differences between High and Low Wage Earners

31 Pages Posted: 24 Dec 2011  

Rob Euwals

CPB Netherlands Bureau of Economic Policy Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Elisabetta Trevisan

University of Padua - Department of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2011

Abstract

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.

Keywords: pensions, early retirement, labour market behaviour

JEL Classification: J16, J22, J61

Suggested Citation

Euwals, Rob and Trevisan, Elisabetta, Early Retirement and Financial Incentives: Differences between High and Low Wage Earners (December 1, 2011). Netspar Discussion Paper No. 12/2011-105. Available at SSRN: https://ssrn.com/abstract=1976313 or http://dx.doi.org/10.2139/ssrn.1976313

Rob Euwals (Contact Author)

CPB Netherlands Bureau of Economic Policy Research ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 70 33 83 438 (Phone)
+31 70 33 83 350 (Fax)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 302 (Phone)
+49 228 3894 210 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Elisabetta Trevisan

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

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