Part-Time Penalties and Heterogeneous Retirement Decisions

Kanta Ogawa

Papers from arXiv.org

Abstract: Older male workers exhibit diverse retirement behaviors across occupations and respond differently to policy changes, influenced significantly by the part-time penalty, wage reduction faced by part-time workers compared to their full-time counterparts. Many older individuals reduce their working hours, and in occupations with high part-time penalties, they tend to retire earlier, as observed in data from Japan and the United States. This study develops a general equilibrium model that incorporates occupational choices, endogenous labor supply, highlighting that the impact on the retirement decision is amplified by the presence of assets and pensions. I find that cutting employees' pension benefits reduce aggregate labor supply in occupations with high part-time penalties in Japan, reducing overall welfare across the economy. In contrast, increasing income tax credits and exempting pension form income tax boost labor supply across all occupations and enhance welfare by raising disposable wages relative to the reservation wage. Reducing part-time penalties in high-penalty occupations also stimulate the labor supply in high-penalty occupations and improve long-term welfare.

Date: 2025-03
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