 Pension reform and the efficiency-equity trade-off: Impacts of removing an early retirement subsidyAsbjørn Goul Andersen, Simen Markussen and Knut Røed () Labour Economics, 2021, vol. 72, issue C 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. To identify causal effects, we exploit a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts faced completely different work incentives from the age of 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In theory, this direct increase in inequality could be either amplified or offset by changes in labor supply. We estimate that the reform triggered a 42% increase in average hours worked during the period covered by early retirement options; however, as labor supply responses were of similar magnitudes across the earnings distribution, they did little to modify the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (21%). Keywords: Pension reform; Inequality; Labor supply (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:72:y:2021:i:c:s0927537121000853 DOI: 10.1016/j.labeco.2021.102050 Access Statistics for this article Labour Economics is currently edited by A. Ichino More articles in Labour Economics from Elsevier |
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