New publications at the chair P&O

Our discussion paper “Beware of the employer: Financial Incentives for Employees may fail to prolong old-age employment” authored by Svenja Lorenz, Thomas Zwick and Mona Bruns [https://ftp.zew.de/pub/zew-docs/dp/dp20007.pdf/] was accepted for publication by the Journal of the Economics of Ageing.

The paper shows that a stepwise increase in the normal retirement age (NRA) by up to five years and the introduction of actuarial pension deductions for retirement before NRA was ineffective in prolonging employment of older men after early retirement age. We argue that the ineffectiveness of the German pension reform resulted from a change in employer behavior that was mainly induced by a recession during the implementation period of the pension reform. Employers seem to have nudged their employees to use a bridge option that was introduced with the pension reform (partial retirement) or a traditional bridge option (unemployment). These bridge options allowed an early retirement age (ERA) of 60 instead of the only alternative early retirement option with an ERA of 63. Bridge options therefore offered employers an opportunity to terminate employment considerably earlier and exert more influence over the employment exit age. We argue that without a change in employer behavior, neither using one of the bridge options nor the earlier employment exit would have been utility maximizing for the individuals affected by the reform.

Another paper by the same authors plus Johannes Geyer (DIW Berlin) “Early Retirement of Employees in Demanding Jobs: Evidence from a German Pension Reform” was published as ZEW Discussion Paper No. 21-082. [https://ftp.zew.de/pub/zew-docs/dp/dp21082.pdf]

This paper argues that early retirement options are usually targeted at employees at risk of not reaching their regular retirement age in employment. An important at‐risk group comprises employees who have worked in demanding jobs for many years. This group may be particularly negatively affected by the abolition of early retirement options. To measure differences in labor market reactions of employees in low‐ and high‐demand jobs, the paper exploits the quasi‐natural experiment of a cohort‐specific pension reform that increased the early retirement age for women from 60 to 63 years. Based on a large administrative dataset, a regression‐discontinuity approach is used to estimate the labor market reactions. Surprisingly, the paper finds the same relative employment increase of about 25% for treated women who were exposed to low and to high job demand. For older women in demanding jobs, it also does not find substitution effects into unemployment, partial retirement, disability pension, or inactivity. Eligibility for the pension for women required high labor market attachment; thus, it is argued that this eligibility rule induced a positive selection of healthy workers into early retirement.