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

  • Rob Euwals

    ()

  • Elisabetta Trevisan

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 two identification strategies to test the predictions. First, we exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. Second, we employ a regression discontinuity design by comparing workers who are eligible and non-eligible to the transitional scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. The results imply that low wage earners will experience a stronger incentive to continue working in an optimal early retirement scheme.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 195.

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Date of creation: Nov 2011
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Handle: RePEc:cpb:discus:195
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  1. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, March.
  2. 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.
  3. Agar Brugiavini & Franco Peracchi, 2004. "Micro-Modeling of Retirement Behavior in Italy," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 345-398 National Bureau of Economic Research, Inc.
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  7. Joulfaian, D. & Wilheim, M.O., 1992. "Inheritance and Labor Supply," Papers 6-92-2, Pennsylvania State - Department of Economics.
  8. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
  9. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2002. "Social Security, Retirement Age and Optimal Income Taxation," CESifo Working Paper Series 693, CESifo Group Munich.
  10. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, vol. 112(478), pages C153-C170, March.
  11. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
  12. Richard Blundell & Costas Meghir & Sarah Smith, 2004. "Pension Incentives and the Pattern of Retirement in the United Kingdom," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 643-690 National Bureau of Economic Research, Inc.
  13. Knut Røed & Fredrik Haugen, 2003. "Early Retirement and Economic Incentives: Evidence from a Quasi-natural Experiment," LABOUR, CEIS, vol. 17(2), pages 203-228, 06.
  14. Coile, Courtney C. & Levine, Phillip B., 2007. "Labor market shocks and retirement: Do government programs matter?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1902-1919, November.
  15. Klaas de Vos & Arie Kapteyn, 2004. "Incentives and Exit Routes to Retirement in the Netherlands," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 461-498 National Bureau of Economic Research, Inc.
  16. Baker, Michael & Benjamin, Dwayne, 1999. "Early Retirement Provisions and the Labor Force Behavior of Older Men: Evidence from Canada," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 724-56, October.
  17. Rob Euwals & Ruud de Mooij & Daniel van Vuuren, 2009. "Rethinking retirement; from participation towards allocation," CPB Special Publication 80, CPB Netherlands Bureau for Economic Policy Analysis.
  18. Arjan Heyma, 2004. "A structural dynamic analysis of retirement behaviour in the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 739-759.
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