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Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe

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  • Alexander M. Danzer

Abstract

The retirement decision is under researched in developing and emerging countries, despite the topic's close relation to many development issues such as poverty reduction and social security, and despite the fact that population ageing will increasingly challenge the developing world. This paper uses a natural experiment from Ukraine to estimate the causal effect of a threefold increase in the legal minimum pension on labor supply and retirement behaviour at older ages. Applying difference-in-difference and regression discontinuity methods on two independent nationally representative data sets, the paper estimates a pure income effect that caused additional retirement of 30 to 47 percent. Additional evidence suggests that retirement incentives are stronger at the lower tail of the educational distribution and that the strict Labor Code curbed responses at the intensive labor supply margin. Although the substantial pension increase provided strong disincentives to work and put a heavy fiscal burden on Ukraine, it significantly reduced the propensity of falling into poverty for those in retirement.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series ESCIRRU Working Papers with number 23.

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Length: 64 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwesc:diwesc23

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Keywords: Labor supply; retirement; minimum pension; pure income effect; poverty; difference-in-differences; regression discontinuity;

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  1. Tilman Brück & Alexander M. Danzer & Alexander Muravyev & Natalia Weißhaar, 2008. "Determinants of Poverty during Transition: Household Survey Evidence from Ukraine," Brooks World Poverty Institute Working Paper Series 2308, BWPI, The University of Manchester.
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    • Jonathan Gruber & Kevin Milligan & David A. Wise, 2010. "Introduction and Summary," NBER Chapters, in: Social Security Programs and Retirement around the World: The Relationship to Youth Employment, pages 1-45 National Bureau of Economic Research, Inc.
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