Retirement incentives, individual heterogeneity and labour transitions of employed and unemployed workers
In this paper we analyze the sensitivity of the labour market decisions of workers close to retirement with respect to the incentives created by public regulations. We improve upon the extensive prior literature on the effect of pension incentives on retirement in two ways. First, by modeling the transitions between employment, unemployment and retirement in a simultaneous manner, paying special attention to the transition from unemployment to retirement (which is particularly important in Spain). Second, by considering the influence of unobserved heterogeneity in the estimation of the effect of our (carefully constructed) incentive variables. Using administrative data, we find that, when properly defined, economic incentives have a strong impact on labour market decisions in Spain. Unemployment regulations are shown to be particularly influential for retirement behaviour, along with the more traditional determinants linked to the pension system. Pension variables also have a major bearing on both workers’ reemployment decisions and on the strategic actions of employers. The quantitative impact of the incentives, however, is greatly affected by the existence of unobserved heterogeneity among workers. Its omission leads to sizable biases in the assessment of the sensitivity to economic incentives, a finding that has clear consequences for the credibility of any model-based policy analysis. We confirm the importance of this potential problem in one especially interesting instance: the reform of early retirement provisions undertaken in Spain in 2002. We use a difference-in-difference approach to measure the behavioural reaction to this change, finding a large overestimation when unobserved heterogeneity is not taken into account.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aguirregabiria, Victor & Mira, Pedro, 2010.
"Dynamic discrete choice structural models: A survey,"
Journal of Econometrics,
Elsevier, vol. 156(1), pages 38-67, May.
- Pedro Mira & Victor Aguirregabiria, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers wp2007_0711, CEMFI.
- Victor Aguirregabiria & Pedro mira, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers tecipa-297, University of Toronto, Department of Economics.
- Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002.
"Unemployment Duration, Benefit Duration and the Business Cycle,"
Royal Economic Society, vol. 112(479), pages 223-265, April.
- Arellano, Manuel & Bentolila, Samuel & Bover, Olympia, 1998. "Unemployment Duration, Benefit Duration and the Business Cycle," CEPR Discussion Papers 1840, C.E.P.R. Discussion Papers.
- Bover, O. & Arellano, M. & Bentolila, S., 1997. "Unemployment Duration, Benefit Duration, and the Business Cycle," Papers 9717, Centro de Estudios Monetarios Y Financieros-.
- repec:att:wimass:9430 is not listed on IDEAS
- Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999.
"Social Security and Retirement in Spain,"
in: Social Security and Retirement around the World, pages 305-353
National Bureau of Economic Research, Inc.
- Michele Belloni & Rob Alessie, 2008. "Retirement Choices: New Evidence for Italy," CeRP Working Papers 73, Center for Research on Pensions and Welfare Policies, Turin (Italy).
- Eric French, 2000.
"The effects of health, wealth, and wages on labor supply and retirement behavior,"
Working Paper Series
WP-00-2, Federal Reserve Bank of Chicago.
- Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
- J. Ignacio García Pérez & Alfonso R Sánchez Martín, 2008.
"Social Security and the search behaviour of workers approaching retirement,"
08.03, Universidad Pablo de Olavide, Department of Economics.
- José Ignacio García & Alfonso R. Sánchez Martín, 2008. "Social security and the search behaviour of workers approaching retirement," Economic Working Papers at Centro de Estudios Andaluces E2008/10, Centro de Estudios Andaluces.
- Courtney Coile & Phillip B. Levine, 2009.
"The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement,"
NBER Working Papers
15395, National Bureau of Economic Research, Inc.
- Coile Courtney C & Levine Phillip B, 2011. "The Market Crash and Mass Layoffs: How the Current Economic Crisis May Affect Retirement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-42, April.
- Sergi Jiménez-Martín & Alfonso R. Sánchez Martín, 2003.
"An evaluation of the life-cycle effects of minimum pensions on retirement behavior,"
108, Barcelona Graduate School of Economics.
- Sergi Jiménez-Mart�n & Alfonso R. Sánchez Mart�n, 2007. "An evaluation of the life cycle effects of minimum pensions on retirement behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(5), pages 923-950.
- Sergi Jiménez-Martín & Alfonso R. Sánchez, 2003. "An evaluation of the life-cycle effects of minimum pensions on retirement behavior," Economics Working Papers 715, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2006.
- John Rust & Christopher Phelan, 1997.
"How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets,"
Econometric Society, vol. 65(4), pages 781-832, July.
- 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.
- Jose Ignacio Garcia Perez, 1997. "Las tasas de salida del empleo y del desempleo en España (1978-1993)," Investigaciones Economicas, Fundación SEPI, vol. 21(1), pages 29-53, January.
When requesting a correction, please mention this item's handle: RePEc:fda:fdaddt:2010-27. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmen Arias)
If references are entirely missing, you can add them using this form.