Early retirement incentives and transition into informality

Abstract

This paper explores the impact of a super early retirement incentive that allowed men to retire as early as 44 years old in Turkey in 1992. Relying on a Fuzzy Regression Discontinuity Design, I find that taking up the incentives significantly reduced the labor force participation of middle-aged men in Turkey. Analysis by education categories suggests that the incentives had an impact on both the skilled and unskilled labor force. I find that the policy-induced take-up of pension benefit receipt significantly increased the probability of moving into informal employment contracts. Findings suggest that the probability of informal wage employment increased for low-skilled individuals while the probability of informal self-employment probability increased for high-skilled individuals. Among low-skilled workers, the incentives seem to have relaxed credit constraints.