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Do buy‐outs of older workers matter?

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  • Daniel Hallberg
  • Matias Eklöf

Abstract

Purpose - This paper aims to look at model retirement behavior with a focus on early retirement where there is an option for “buy‐outs”. An employer can offer employees generous pension programs if the employees agree on early retirement. Earlier studies have neglected such offers, but in doing so, estimates of the individuals' responses to financial incentives in a retirement decision are likely to be biased upward. Design/methodology/approach - The authors propose an estimation strategy where the retirement decision and the accesses to early retirement pension (ERP) offers are estimated in a simultaneous equation system, yielding unbiased estimates of the model parameters. They apply the model using detailed Swedish register data. Findings - The results indicate that the marginal effects in retirement probability with respect to a change in financial incentives is less pronounced if ERPs are accounted for. Further, results imply that the early retirement probabilities would decrease, depending on year, by 14‐28 percent for males and 7‐18 percent for females if ERP offers were absent. Research limitations/implications - As the motives for early retirement pensions most likely stem from how the collective agreement occupational pensions are financed, this emphasizes the need for a debate on the preferable construction of these systems. This becomes particularly important in view of the increased old age dependency ratios that are expected in the near future. Originality/value - Although these offers have important policy implications they have received limited attention. This paper fills an important gap in the existing pension literature, and it analyzes early retirement and tries to assess the importance of special early retirement pension programs for these outcomes.

Suggested Citation

  • Daniel Hallberg & Matias Eklöf, 2010. "Do buy‐outs of older workers matter?," International Journal of Manpower, Emerald Group Publishing Limited, vol. 31(3), pages 337-359, June.
    • Handle: RePEc:eme:ijmpps:v:31:y:2010:i:3:p:337-359
    DOI: 10.1108/01437721011050611
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    Cited by:

    1. Anders Stenberg & Xavier Luna & Olle Westerlund, 2012. "Can adult education delay retirement from the labour market?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(2), pages 677-696, January.
    2. Hallberg, Daniel, 2011. "Is Early Retirement Encouraged by the Employer? Labor-Demand Effects of Age-Related Collective Fees," Working Paper Series, Center for Labor Studies 2011:5, Uppsala University, Department of Economics.
    3. Anders Stenberg & Olle Westerlund, 2013. "Education and retirement: does University education at mid-age extend working life?," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-22, December.

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