Labor Market and Distributional Effects of an Increase in the Retirement Age

Abstract

We evaluate the labor market and distributional effects of an increase in the early retirement age (ERA) from 60 to 63 for women born after 1951. We use a regression discontinuity design which exploits the strong increase in the ERA between women born in 1951 and 1952. The analysis is based on the German microcensus which includes about 370,000 households per year. We focus on heterogeneous labor market effects as well as spill-over effects within the household, and we study the distributional implications using net household income. In this respect, we extend the previous literature which mainly studies employment effects at the individual level. Our results show sizable labor market effects which strongly differ by subgroups. The income analysis suggests that the distribution of household income is not affected by the reform. Even for the most vulnerable groups, such as single households or women without high education, we do not find significant reductions in household income. One reason for this result is program substitution. Finally, our back-of-the-envelope calculation suggests positive fiscal effects of the reform in the short-run which are mainly caused by reduced pension payments to women aged 60-62.