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Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK

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Author Info

  • Jonathan Cribb

    ()
    (Institute for Fiscal Studies)

  • Carl Emmerson

    ()
    (Institute for Fiscal Studies)

  • Gemma Tetlow

    ()
    (Institute for Fiscal Studies)

Abstract

In 1995, the UK government legislated to increase the earliest age at which women could claim a state pension from 60 to 65 between April 2010 and March 2020. This paper uses data from the first two years of this change coming into effect to estimate the impact of increasing the state pension age from 60 to 61 on the employment of women and their partners using a difference-in-differences methodology. Our methodology controls in a flexible way for underlying differences between cohorts born at different times. We find that women's employment rates at age 60 increased by 7.3 percentage points when the state pension age was increased to 61 and their probability of unemployment increased by 1.3 percentage points. The employment rates of the male partners also increased by 4.2 percentage points. The magnitude of these effects, and the results from subgroup analysis, suggest they are more likely explained by the increase in the state pension age being a shock or through it having a signalling effect rather than them being due to either credit constraints or the effect of individuals responding to changes in their financial incentives to work. Taken together, our results suggest that the fiscal strengthening arising from a one-year increase in the female state pension age is 10% higher than a costing based on no behavioural change, due to additional direct and indirect tax revenues arising from increased earnings.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/03.

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Date of creation: Mar 2013
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Handle: RePEc:ifs:ifsewp:13/03

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Keywords: Early retirement age; labour supply; policy reform; retirement;

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References

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  1. Giovanni Mastrobuoni, 2006. "Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities," CeRP Working Papers 53, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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  4. repec:att:wimass:9430 is not listed on IDEAS
  5. Coppola, Michela & Wilke, Christina Benita, 2010. "How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German case," MEA discussion paper series 10207, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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Citations

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Cited by:
  1. James Banks & Carl Emmerson & Gemma Tetlow, 2014. "Effect of Pensions and Disability Benefits on Retirement in the UK," NBER Chapters, in: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement National Bureau of Economic Research, Inc.
  2. Richard Blundell & Claire Crawford & Wenchao (Michelle) Jin, 2013. "What can wages and employment tell us about the UK's productivity puzzle?," IFS Working Papers W13/11, Institute for Fiscal Studies.
  3. Ricky Kanabar, 2012. "Unretirement in England: An empirical perspective," Discussion Papers 12/31, Department of Economics, University of York.
  4. Stuart Adam & James Browne, 2013. "Do the UK Government’s welfare reforms make work pay," IFS Working Papers W13/26, Institute for Fiscal Studies.

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