Abstract
Many European countries have implemented pension reforms to increase the statutory retirement age with the aim of increasing labor supply. However, not all older workers may be able or want to work to a very high age. Using a nation-wide register data of labor market transitions, we investigated in this natural experiment the effect of an unexpected change in the Dutch pension system on labor market behaviors of older workers. Specifically, we analyzed transitions in labor market positions over a 5-year period in two nation-wide Dutch cohorts of employees aged 60 years until they reached the retirement age (n = 23,703). We compared transitions between the group that was still entitled to receive early retirement benefits to a group that was no longer entitled to receive early retirement benefits. Results showed that the pension reform was effective in prolonging work participation until the statutory retirement age (82% vs. 61% at age 64), but also to a larger proportion of unemployment benefits in the 1950 cohort (2.0–4.2%) compared to the 1949 cohort (1.4–3.2%). Thus, while ambitious pension reforms can benefit labor supply, the adverse effects should be considered, especially because other studies have shown a link between unemployment and poor health.
Highlights
Modern industrialized countries have well-developed pension systems that provide income support after retirement
If we found substantial differences between the 1949 and the 1950 cohort, this was indicative of other structural changes besides the pension reform affecting labor market behavior of older workers
Of the 1949 born who were at work in January 2010, 85% was still at work one year later and this drops to 61% in the final year prior to the statutory retirement age
Summary
Modern industrialized countries have well-developed pension systems that provide income support after retirement. These pension systems act upon financial incentives that influence retirement behavior. Retirement benefits are lower when individuals decide to retire at early ages, and they tend to increase when a worker delays retirement. The individual worker considering retirement is faced with the trade-off between accepting lower benefits and more years in retirement versus higher benefits, but fewer years in retirement. Faced with population aging and declining fertility rates, many countries have started to implement pension reforms that are aimed at increasing the labor supply of older workers by either abolishing or reducing the relative benefits of early retirement
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