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Pension Reform and Labor Supply: Flexibility vs. Prescription

Author

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  • Hernaes, Erik

    (Ragnar Frisch Centre for Economic Research)

  • Markussen, Simen

    (Ragnar Frisch Centre for Economic Research)

  • Piggott, John

    (University of New South Wales)

  • Røed, Knut

    (Ragnar Frisch Centre for Economic Research)

Abstract

We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to alternative pension reform strategies relying on improved work incentives (flexibility) or increased access ages (prescription), respectively. We find that increasing the returns to work is a powerful policy tool: The removal of the earnings test at age 63 led to an immediate increase in average annual labor earnings among the affected mature workers by around $14,700 (NOK 90,000). The implied uncompensated labor earnings elasticity (the percentage change in average gross earnings relative to the percentage change in average work-incentives) is around 0.25.

Suggested Citation

  • Hernaes, Erik & Markussen, Simen & Piggott, John & Røed, Knut, 2015. "Pension Reform and Labor Supply: Flexibility vs. Prescription," IZA Discussion Papers 8812, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8812
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    References listed on IDEAS

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    Cited by:

    1. David Ingles & Miranda Stewart, 2017. "Reforming Australia's Superannuation Tax System and the Age Pension to Improve Work and Savings Incentives," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 4(3), pages 417-436, September.
    2. Dennis Fredriksen & Nils Martin Stølen, 2015. "Life time pension benefits relative to life time contributions," Discussion Papers 825, Statistics Norway, Research Department.
    3. Vigtel, Trond Christian, 2018. "The retirement age and the hiring of senior workers," Labour Economics, Elsevier, vol. 51(C), pages 247-270.
    4. Hernæs, Erik & Markussen, Simen & Piggott, John & Røed, Knut, 2016. "Pension reform and labor supply," Journal of Public Economics, Elsevier, vol. 142(C), pages 39-55.

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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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