Expected and Unexpected Consequences of Russian Pension Increase in 2010

This paper studies the effects of the pension increase in Russia in 2010 on the labour force participation decisions and living arrangements of senior people and their family members. There is not much research on the effects of pension rises in Russia. In particular, researchers have not yet analysed the influence of pension increases in Russia on nonelderly people nor the heterogeneity of this influence. The increase in pensions in 2010 is of particular interest due to its unique magnitude, its relative independence from economic trends in Russia at that time, and its plausible exogeneity for pensioners. This study provides evidence that this jump in pension caused an approximately 5 percentage point increase in the relative number of seniors who chose to retire. The effect was stronger in the two biggest cities of Russia, namely Moscow and Saint Petersburg, where before 2010 a substantial number of people continued to work after reaching the pension age. One out of four employed pensioners living in these cities left the labour force in 2010. In addition, this paper shows a relatively unexpected external effect on younger individuals. The labour force participation decisions of younger people who lived with pension receivers were influenced considerably. The non-seniors who lived with pensioners, compared with their peers, were less likely to work or to look for jobs. The change in pensions also affected living arrangements. The rate of pension receivers living with their children and grandchildren went up significantly. Thus, the evidence from the 2010 pension increase highlights the fact that policies might have an impact not only on the target group of population, but on the family members of this group as well.