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A dynamic programming approach to model the retirement behaviour of blue-collar workers in Sweden

  • Anders Karlstrom

    (Systems Analysis and Economics, Royal Institute of Technology, Stockholm, Sweden)

  • Marten Palme

    (Department of Economics, Stockholm University, Sweden)

  • Ingemar Svensson

    (National Social Insurance Board, Stockholm, Sweden)

This paper presents an empirical analysis of how Sweden's public old age pension system affects the retirement decision. We focus on male blue-collar workers whose dominant income source as retired comes from the public old age pension system. We develop a dynamic programming model using the rules for the public pension system. In addition to the effects of economic incentives through the pension systems the DP model also measures the effect of the mandatory retirement age of 65-which applies to most parts of Sweden's labour market-on retirement behaviour. The estimated model fits within-sample retirement patterns remarkably well. A simulation of a hypothetical reform, where all retirement incentives in the pension schemes are delayed by three years, shows that economic incentives affect retirement behaviour. Copyright © 2004 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 19 (2004)
Issue (Month): 6 ()
Pages: 795-807

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Handle: RePEc:jae:japmet:v:19:y:2004:i:6:p:795-807
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  1. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  2. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
  3. Karlström, Anders & Palme, Mårten & Svensson, Ingemar, 2002. "The Timing of Retirement and Social Security Reforms: Measuring Individual Welfare Changes," Arbetsrapport 2002:8, Institute for Futures Studies.
  4. Mårten Palme & Ingemar Svensson, 2004. "Income Security Programs and Retirement in Sweden," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 579-642 National Bureau of Economic Research, Inc.
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