Early Retirement Provision for Elderly Displaced Workers

This paper examines the economic consequences of losing eligibility for early retirement (ER) benefits due to involuntary job displacement. In Norway, job displacement before a certain age cutoff results in the loss of eligibility for ER benefits between ages 62 and 67. This allows us to employ a credible regression discontinuity design to identify causal effects. We utilize detailed Norwegian matched employer-employee data containing information on bankruptcy dates to identify job displacements, along with data on individual income, wealth, pensions, and social security benefits. We do not detect any differences in re-employment rates or labor market earnings between workers who retain eligibility for ER benefits and those who do not, with point estimates being close to zero and statistically insignificant. Meanwhile, those who lose ER eligibility substitute 69 percent of their lost benefits through the uptake of other social security benefits, with 51 percentage points attributed to disability insurance and 13 percentage points to unemployment insurance. Applying the Baily-Chetty formula for optimal social security provision, we show that a very high level of risk aversion would be required for the provision of ER benefits to elderly involuntary displaced workers to be an overall improvement for social welfare.