It is never too late? Evidence on increasing the retirement age in a transition economy

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<p> 1. Increasing retirement age in transition It is never too late? Evidence on increasing the retirement age in a transition economy Pawel Strzelecki12 Joanna Tyrowicz31 1 National Bank of Poland 2 Warsaw School of Economics 3 University of Warsaw IZA / World Bank June 2015 2. Increasing retirement age in transition Motivation and insights from literature Motivation I Issues common to many (not only transition) countries Longevity ... ... aggravated with (really!) early retirement, see Fox (1997) average female exit age in 2000 in PL: 52 years Solutions: introduce universal DC systems stronger link between contributions and benets PL in 1997-1999, but temporarily keep occupational privileges gradually reduce the occupational privileges keep people in activity longer PL in 2004: extend occupational privileges and additional exceptions PL in 2009: only medical criteria for early retirement 3. Increasing retirement age in transition Motivation and insights from literature Motivation II 4. Increasing retirement age in transition Motivation and insights from literature Motivation I In about 2007 things start to change 5. Increasing retirement age in transition Motivation and insights from literature Motivation II 6. Increasing retirement age in transition Motivation and insights from literature Motivation III In 2009 reform of early retirement Eligibility for pension benets Prior to 2009 After 2009 W born before 1954 Experience: 25, age: 55 Experience: 25, age 55 W born after 1954 Experience: 25, age: 55 Experience: 25, age: 60* M born before 1949 Experience: 30, age: 60 Experience: 30, age: 65 M born after 1949 Experience: 30, age: 60 Experience: 30, age: 65* * selected occupations based on medical criteria Bottom line: 85% of workers lost eligibility for early retirement 7. Increasing retirement age in transition Motivation and insights from literature Earlier insights For the US (or other advanced economies): Krueger and Pischke (1992); Jensen and Richter (2003); Snyder and Evans (2006); Liebman et al. (2009); Mastrobuoni (2009); Blau and Goodstein (2010); Behaghel and Blau (2012), summarized wonderfully by Manoli and Weber (2014) For transition economies: Jensen and Richter (2003) for Russia Danzer (2013) for Ukraine Bottom line: pass-through is not complete, but people respond to changes in incentives 8. Increasing retirement age in transition Motivation and insights from literature Our objectives Take the (huge!) Polish reform of 2009, exploit the discontinuity and inquire: Reduction in pension benets take-up Increase in labor force participation Reduction in outows to inactivity 9. Increasing retirement age in transition Motivation and insights from literature Table of contents 1 Motivation and insights from literature 2 Data 3 Results 4 Conclusions 5 References 10. Increasing retirement age in transition Data Our data - Labor Force Surveys (2007-2012) Exploit the rotating panel Compute the age on Jan 1st, 2009 (adequate up to 1 month) Focus on transitions (earlier literature focuses on stocks) Control for confounding factors (age, education, household structure) Control for eligible/ineligible occupations 11. Increasing retirement age in transition Data Stocks - that everybody loves so much: pension take-up I 12. Increasing retirement age in transition Data Stocks - that everybody loves so much: pension take-up II 13. Increasing retirement age in transition Data Stocks - that everybody loves so much: exit age (women) 14. Increasing retirement age in transition Data Stocks - that everybody loves so much: exit age (men) 15. Increasing retirement age in transition Data Descriptives I Before the reform After the reform eligible ineligible eligible ineligible Number of individuals 68,788 562 2,083 38,535 16. Increasing retirement age in transition Data Descriptives I Before the reform After the reform eligible ineligible eligible ineligible Number of individuals 68,788 562 2,083 38,535 Labor force participation rate (in %) 22.1 18.3 51.1 42.9 Share of pension benet recipients (in %) 52.7 12.6 39.4 19.3 17. Increasing retirement age in transition Data Descriptives I Before the reform After the reform eligible ineligible eligible ineligible Number of individuals 68,788 562 2,083 38,535 Labor force participation rate (in %) 22.1 18.3 51.1 42.9 Share of pension benet recipients (in %) 52.7 12.6 39.4 19.3 Quarterly transition probabilities: remain active 0.95 0.75 0.94 0.96 exit to early pension 0.05 0.03 0.06 0.03 exit to inactivity (age) 0.05 0.25 0.06 0.04 exit to inactivity (exp) 0.05 - 0.05 0.03 18. Increasing retirement age in transition Data Descriptives II Before the reform After the reform eligible ineligible eligible ineligible Individual characteristics (in %): Share of women 60.8 81.0 29.6 56.8 19. Increasing retirement age in transition Data Descriptives II Before the reform After the reform eligible ineligible eligible ineligible Individual characteristics (in %): Share of women 60.8 81.0 29.6 56.8 Tertiary education 12.5 3.9 11.5 13.2 20. Increasing retirement age in transition Data Descriptives II Before the reform After the reform eligible ineligible eligible ineligible Individual characteristics (in %): Share of women 60.8 81.0 29.6 56.8 Tertiary education 12.5 3.9 11.5 13.2 Secondary education 37.1 26.5 32.8 35.8 Vocational 29.4 29.0 38.9 33.4 Primary 20.9 40.6 16.8 17.6 21. Increasing retirement age in transition Data Descriptives II Before the reform After the reform eligible ineligible eligible ineligible Individual characteristics (in %): Share of women 60.8 81.0 29.6 56.8 Tertiary education 12.5 3.9 11.5 13.2 Secondary education 37.1 26.5 32.8 35.8 Vocational 29.4 29.0 38.9 33.4 Primary 20.9 40.6 16.8 17.6 Households with: other worker (in %) 44.1 45.6 49.4 50.9 other pension (in %) 50.7 43.4 46.6 38.6 other child (in %) 12.8 16.2 13.0 12.5 22. Increasing retirement age in transition Results Aggregate results I Please, remember, this was a HUGE reform (5 years, 85% aected) 23. Increasing retirement age in transition Results Aggregate results II Model Coecient (Std. Err.) z-statistic Signicance level (a) transition to early retirement - 6% - sharp -0.0108 0.0066 1.637 0.102 - fuzzy -0.0118 0.0072 -1.637 0.102 (b) remaining economically active - 94% - sharp 0.0270 0.0095 -2.836 0.005 - fuzzy 0.0308 0.0109 2.835 0.005 (c) transition to inactivity (adequate age) - 6% - sharp -0.0269 0.0095 2.829 0.005 - fuzzy -0.0308 0.0109 -2.828 0.005 (d) transition to inactivity (with sucient tenure) - 5% - sharp -0.0221 0.0095 2.324 0.020 - fuzzy -0.0252 0.0108 -2.324 0.020 24. Increasing retirement age in transition Results Aggregate results III 25. Increasing retirement age in transition Results Aggregate results IV But dont people always retire at retirement? 26. Increasing retirement age in transition Results Placebo tests - eyeballing I Exit to retirement 27. Increasing retirement age in transition Results Placebo tests - eyeballing II Remain active 28. Increasing retirement age in transition Results Placebo tests - eyeballing III Exit to inactivity 29. Increasing retirement age in transition Results Confounding evidence I Probit of likelihood to get a signicant estimator (1) (2) (3) (4) Reform quarter 0.3310*** -0.3311*** 0.3309*** 0.3312*** (0.048) (0.048) (0.048) (0.048) Treatment 0.0000 0.0000 -0.0000 0.0000 (0.016) (0.016) (0.016) (0.016) Other retired in hh -0.0437 (0.028) Other worker in hh -0.0331 (0.029) Kid in hh -0.0647** (0.027) Female -0.0229 (0.029) FE for outcome variables Yes Yes Yes Yes Observations 2,576 2,576 2,576 2,576 30. Increasing retirement age in transition Results Confounding evidence II Probit of likelihood to get a signicant estimator (1) (2) (3) (4) Reform quarter 0.3310*** -0.3311*** 0.3309*** 0.3312*** (0.048) (0.048) (0.048) (0.048) Treatment 0.0000 0.0000 -0.0000 0.0000 (0.016) (0.016) (0.016) (0.016) Primary -0.0637** -0.0628** -0.0619** -0.0657** (0.027) (0.027) (0.027) (0.027) Gymnasium -0.0374 -0.0363 -0.0354 -0.0395 (0.029) (0.029) (0.029) (0.029) Vocational -0.0784*** -0.0775*** -0.0767*** -0.0802*** (0.026) (0.026) (0.026) (0.026) Tertiary -0.0361 -0.0350 -0.0341 -0.0383 (0.029) (0.029) (0.029) (0.029) FE for outcome variables Yes Yes Yes Yes Observations 2,576 2,576 2,576 2,576 31. Increasing retirement age in transition Conclusions Conclusions Discontinuity from the reform: small relative to the scope of the reform Almost no heterogeneity Would have happened even without the reform? 32. Increasing retirement age in transition Conclusions Questions or suggestions? Thank you! 33. Increasing retirement age in transition References References Behaghel, L. and Blau, D. (2012). Framing social security reform: behavioral responses to changes in the full retirement age. American Economic Journal: Economic Policy, 4:4167. Blau, D. and Goodstein, R. (2010). Can social security explain trends in labor force participation of older men in the United States? Journal of Human Resources, 45:328363. Danzer, A. (2013). Benet generosity and the income eect on labour supply: quasi-experimental evidence. Economic Journal, 123:10591084. Fox, L. (1997). Pension reform in the post-communist transition economies. In Nelson, J. M., Tilly, C., and Walker, L., editors, Transforming Post-Communist Political Economies. National Academy Press, Washington, D.C. Jensen, R. and Richter, K. (2003). The health implications of social security failure: evidence from the Russian pensions. Journal of Public Economics, 88:209236. Krueger, A. and Pischke, J.-S. (1992). The eect of social security on labor supply: a cohort analysis of the notch generation. Journal of Labor Economics, 10:41204437. Liebman, J., Luttmer, E., and Seif, D. (2009). Labor supply responsens to marginal Social Security benets: Evidence from discontinuities. Journal of Public Economics, 93:12241233. Manoli, D. and Weber, A. (2014). Intertemporal substitution in labor force participation: evidence from policy discontinuities. CESifo Working Paper Series 4619, CESifo. Mastrobuoni, G. (2009). Labor supply eects of the recent social security benet cuts: Empirical estimates using cohort discontinuities. Journal of Public Economics, 93(11):12241233. Snyder, S. and Evans, W. (2006). The eect of income on mortality: evidence from social security notch. Review of Economics and Statistics, 88:482495. </p>

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