Pension Reform and Labor Supply: Flexibility vs. Prescription

37 Pages Posted: 14 Feb 2015

See all articles by Erik Hernæs

Erik Hernæs

University of Oslo - Ragnar Frisch Centre for Economic Research

Simen Markussen

University of Oslo - Ragnar Frisch Centre for Economic Research

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics

Knut Roed

Ragnar Frisch Centre for Economic Research; IZA Institute of Labor Economics

Abstract

We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to alternative pension reform strategies relying on improved work incentives (flexibility) or increased access ages (prescription), respectively. We find that increasing the returns to work is a powerful policy tool: The removal of the earnings test at age 63 led to an immediate increase in average annual labor earnings among the affected mature workers by around $14,700 (NOK 90,000). The implied uncompensated labor earnings elasticity (the percentage change in average gross earnings relative to the percentage change in average work-incentives) is around 0.25.

Keywords: early retirement, labor supply, pension reform, program evaluation

JEL Classification: H55, J22, J26

Suggested Citation

Hernæs, Erik and Markussen, Simen and Piggott, John and Røed, Knut, Pension Reform and Labor Supply: Flexibility vs. Prescription. IZA Discussion Paper No. 8812. Available at SSRN: https://ssrn.com/abstract=2564945

Erik Hernæs (Contact Author)

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

Simen Markussen

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

John Piggott

University of New South Wales (UNSW) - Australian School of Business, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Knut Røed

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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