Third party funded individual grant
Start date : 01.09.2018
End date : 31.03.2020
Extension date: 31.03.2021
insurance. The reforms increased the normal and early retirement ages for individuals who experienced unemployment or subsidized old age part-time work (jointly labelled 'the unemployment pathway'). We investigate the effects of these changes on labor force participation, unemployment, and retirement behavior. The analysis is of particular relevance for the retirement insurance as similar reforms will be necessary in the future.
The first reform increased normal retirement age (NRA) for retirees on the unemployment pathway stepwise from age 60 to 63 for the birth cohorts 1937-1939. Simultaneously, it became possible to use early retirement on the unemployment pathway with benefit discounts. The second reform increased the early retirement age (ERA) for retirees on the unemployment pathway stepwise from age 60 to 63 for the birth cohorts 1946-1949.
The first reform implied that individuals newly had to (permanently) give up 0.3 percent of their retirement benefits for every month that they retired prior to the new NRA. The second reform limited the choice set and disallowed benefit receipt prior to the now increasing ERA on the unemployment pathway to retirement.
The proposed project investigates and quantifies behavioral adjustments after the two reforms. We focus on labor force participation, exit from employment, entry to and duration of time spent in unemployment, the timing of retirement entry, as well as program substitution, such as the use of disability retirement.
We plan to apply administrative data provided by the Research Data Centre of the German Pension Insurance and use difference-in-differences estimations. This method compares the post-reform behavioral adjustments of treated male individuals (treatment group) with possible post-reform behavioral adjustments of female individuals (control group) who are similar in observable characteristics but are not affected by the reform. The female individuals are not treated because they can use the women's pathway to retirement, which was not modified by the reform and continues to offer the pre-reform retirement options.
The analysis determines (a) the causal reform effects on labor market, retirement, and program substitution behaviors. We compare (b) fiscal and behavioral effects including the underlying mechanisms for both reforms. We also study (c) whether reform effects are heterogeneous for individuals retiring after unemployment vs. old age part-time work, and along dimensions such as health, income, educational attainment, region, and intensity of the reform treatment.
We expect to provide new insights that, first, answer scientifically interesting questions based on the application of modern and econometrically appropriate methods and, second, are policy relevant with respect to the future design of retirement entry regulations.