Abstract
Many governments are aiming to extend working lives by raising the age at which people can claim retirement pensions. This makes it vital to understand how these policies affect retirement decisions. In this paper, I revisit the labor supply effects of a major Australian reform that increased women’s pension age from 60 to 65. Atalay and Barrett (2015) studied these effects using repeated household surveys and a differences-in-differences design in which male cohorts form the comparison group. They estimate that the reform increased female labor force participation by 12 percentage points. Using earlier data, I show that the parallel-trends assumption did not hold before the reform because of a strong female-specific trend in participation rates across the relevant cohorts. Accounting for this trend, the estimated effect on female participation falls by two-thirds and becomes statistically insignificant at conventional levels. This highlights the importance of carefully assessing and controlling for trends across cohorts when evaluating pension reforms, which are typically phased in across cohorts.
Highlights
In response to aging populations, many governments are reducing the generosity of retirement pensions for younger cohorts through increases in eligibility ages or reductions in benefit amounts
Atalay and Barrett (2015) argue that this reform is useful for understanding mechanisms because Australia’s retirement pension is non-contributory. This means that there is no accrual effect — an effect which has been emphasized in the literature (Gruber & Wise, 2004; Samwick, 1998) — and any impact on retirement decisions must result from other mechanisms
I find that the estimated increase in female labor force participation falls by two-thirds to 4.1 percentage points and becomes statistically indistinguishable from zero at the 10% level
Summary
In response to aging populations, many governments are reducing the generosity of retirement pensions for younger cohorts through increases in eligibility ages or reductions in benefit amounts. Even when these differences appear to reflect logical responses to a decrease in the generosity of retirement benefits for later cohorts — and even when differences across earlier cohorts are minimal near the retirement age — it is important, where possible, to examine trends across the relevant cohorts in earlier time periods This recommendation applies generally and is not specific to studies focused on the effects on female labor supply; studies focused on other potentially correlated outcomes like welfare receipt or health should be careful in attributing cohort differences in outcomes to the effects of pension reforms
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