Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215314 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 12918
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. Causal effects are identified based on a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts were exposed to completely different work incentives from age 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given the pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In principle, this could have been offset by changes in the labor supply. We estimate that the reform triggered a 42% increase in hours worked during the ages covered by early retirement options. However, as the labor supply responses were of similar magnitudes across the earnings distribution, they did little to offset the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (17%).
Subjects: 
pension reform
inequality
labor supply
JEL: 
H55
D31
J22
J26
Document Type: 
Working Paper

Files in This Item:
File
Size
1.17 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.