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Retirement Responses to a Generous Pension Reform: Evidence from a Natural Experiment in Eastern Europe

Alexander Danzer ()

No 23, ESCIRRU Working Papers from DIW Berlin, German Institute for Economic Research

Abstract: The retirement decision is under researched in developing and emerging countries, despite the topic's close relation to many development issues such as poverty reduction and social security, and despite the fact that population ageing will increasingly challenge the developing world. This paper uses a natural experiment from Ukraine to estimate the causal effect of a threefold increase in the legal minimum pension on labor supply and retirement behaviour at older ages. Applying difference-in-difference and regression discontinuity methods on two independent nationally representative data sets, the paper estimates a pure income effect that caused additional retirement of 30 to 47 percent. Additional evidence suggests that retirement incentives are stronger at the lower tail of the educational distribution and that the strict Labor Code curbed responses at the intensive labor supply margin. Although the substantial pension increase provided strong disincentives to work and put a heavy fiscal burden on Ukraine, it significantly reduced the propensity of falling into poverty for those in retirement.

Keywords: Labor supply; retirement; minimum pension; pure income effect; poverty; difference-in-differences; regression discontinuity (search for similar items in EconPapers)
JEL-codes: I38 J26 O15 (search for similar items in EconPapers)
Pages: 64 p.
Date: 2010
New Economics Papers: this item is included in nep-age, nep-eur, nep-lab and nep-tra
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