Employment and Substitution Effects of Raising the Statutory Eligibility Age in France

Increasing the minimum retirement age is a widespread option chosen by policy makers to reduce spending in financially constrained public pension systems. Yet the effectiveness of such a reform strongly depends on the ability of the impacted individuals to postpone their withdrawal from the labor force. In this paper, we evaluate the effects of the 2010 French pension reform that increased the statutory eligibility age of retirement from 60 to 62. To do so, we use a differences-in-differences methodology, comparing the trajectories from work to retirement for succeeding generations facing a different statutory age. Using a detailed social security administrative database, we provide a global assessment of the effects of the reform, accounting for the potential substitution effects from old-age insurance towards unemployment, sickness or disability insurance schemes. Our findings suggest that despite a sizable effect on the employment rate, the reform also strongly in- creased unemployment and disability rates. These substitution effects largely reduce the impact of the reform: our estimates suggest that around one fifth in the decrease in public spending is offset by increasing expenses in other public insurance schemes.