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Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK

  • Jonathan Cribb

    ()

    (Institute for Fiscal Studies)

  • Carl Emmerson

    ()

    (Institute for Fiscal Studies)

  • Gemma Tetlow

    ()

    (Institute for Fiscal Studies)

In 1995, the UK government legislated to increase the earliest age at which women could claim a state pension from 60 to 65 between April 2010 and March 2020. This paper uses data from the first two years of this change coming into effect to estimate the impact of increasing the state pension age from 60 to 61 on the employment of women and their partners using a difference-in-differences methodology. Our methodology controls in a flexible way for underlying differences between cohorts born at different times. We find that women's employment rates at age 60 increased by 7.3 percentage points when the state pension age was increased to 61 and their probability of unemployment increased by 1.3 percentage points. The employment rates of the male partners also increased by 4.2 percentage points. The magnitude of these effects, and the results from subgroup analysis, suggest they are more likely explained by the increase in the state pension age being a shock or through it having a signalling effect rather than them being due to either credit constraints or the effect of individuals responding to changes in their financial incentives to work. Taken together, our results suggest that the fiscal strengthening arising from a one-year increase in the female state pension age is 10% higher than a costing based on no behavioural change, due to additional direct and indirect tax revenues arising from increased earnings. The current version of this working paper was published in January 2014 and replaces an earlier version originally published in March 2013.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/03.

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Date of creation: Mar 2013
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Handle: RePEc:ifs:ifsewp:13/03
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  1. Bottazzi, Renata & Jappelli, Tullio & Padula, Mario, 2006. "Retirement expectations, pension reforms, and their impact on private wealth accumulation," Journal of Public Economics, Elsevier, vol. 90(12), pages 2187-2212, December.
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  4. Staubli, Stefan & Zweimüller, Josef, 2011. "Does Raising the Retirement Age Increase Employment of Older Workers?," IZA Discussion Papers 5863, Institute for the Study of Labor (IZA).
  5. Coppola, Michela & Wilke, Christina Benita, 2010. "How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German case," MEA discussion paper series 10207, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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  7. Mastrobuoni, Giovanni, 2009. "Labor supply effects of the recent social security benefit cuts: Empirical estimates using cohort discontinuities," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1224-1233, December.
  8. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  9. repec:att:wimass:9430 is not listed on IDEAS
  10. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
  11. Fields, Gary S. & Mitchell, Olivia S., 1984. "The effects of social security reforms on retirement ages and retirement incomes," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 143-159, November.
  12. Gruber, Jonathan & Wise, David A. (ed.), 2007. "Social Security Programs and Retirement around the World," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226310176.
  13. Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," Economic Journal, Royal Economic Society, vol. 112(478), pages C136-C152, March.
  14. Asch, Beth & Haider, Steven J. & Zissimopoulos, Julie, 2005. "Financial incentives and retirement: evidence from federal civil service workers," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 427-440, February.
  15. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  16. David A. Wise, 1996. "Advances in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise96-1, 07.
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