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Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners

Author

Listed:
  • Euwals, Rob

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Trevisan, Elisabetta

    (University of Padua)

Abstract

This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ a linear random effects model to test the predictions. We exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. This implies that low wage earners will experience a stronger incentive to continue working in an early retirement scheme with a low implicit tax rate.

Suggested Citation

  • Euwals, Rob & Trevisan, Elisabetta, 2014. "Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners," IZA Discussion Papers 8466, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8466
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    References listed on IDEAS

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    1. Rob Euwals & Daniel Vuuren & Ronald Wolthoff, 2010. "Early Retirement Behaviour in the Netherlands: Evidence From a Policy Reform," De Economist, Springer, vol. 158(3), pages 209-236, September.
    2. Helmuth Cremer & Jean‐Marie Lozachmeur & Pierre Pestieau, 2008. "Social Security And Retirement Decision: A Positive And Normative Approach," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 213-233, April.
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    Cited by:

    1. Pilar Garcia-Gomez & Titus J. Galama & Eddy van Doorslaer & Angel Lopez-Nicolas, 2017. "Interactions Between Financial Incentives and Health in the Early Retirement Decision," Tinbergen Institute Discussion Papers 17-044/V, Tinbergen Institute.
    2. Sahlgren, Gabriel H., 2012. "Work ‘til You Drop: Short- and Longer-Term Health Effects of Retirement in Europe," Working Paper Series 928, Research Institute of Industrial Economics.

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    More about this item

    Keywords

    pensions; early retirement; labour market behaviour;
    All these keywords.

    JEL classification:

    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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