Incentive Effects of Social Security Under an Uncertain Disability Option

Axel Boersch-Supan

No 7339, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Incentive effects of pension systems are usually estimated under the assumption that the institutional environment provides a single optimal 'pathway' for retirement. However, many countries provide competing pathways which may include several early retirement options in addition to normal retirement. Moreover, early retirement options often comprise special provisions for disabled and unemployed workers that can be strategically manipulated by the employer and the employee while ultimate eligibility for such provisions is uncertain in advance. This paper shows that ignoring the endogeneity and/or uncertainty in the relevant institutional setting can severely bias the estimates of incentive effects. Ignoring the endogeneity leads to overestimated incentive effects that unduly exaggerate the 'pull' view of early retirement. In turn, when the uncertain option set is specified too generously, incentive effects are underestimated. The paper proposes several estimates to bound the true incentive effects of social security on early retirement, and applies them to the German public pension system.

Date: 1999-09
New Economics Papers: this item is included in nep-lab and nep-pbe
Note: AG PE
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Published as Borsch-Supan, Axel. "Incentive Effects Of Social Security On Labor Force Participation: Evidence In Germany And Across Europe," Journal of Public Economics, 2000, v78(1-2,Oct), 25-49.
Published as Wise, David, (ed.) Themes in the economics of aging, NBER Conference Report series. Chicago and London: University of Chicago Press, 2001.
Published as Incentive Effects of Social Security under an Uncertain Disability Option , Axel H. Boersch-Supan. in Themes in the Economics of Aging , Wise. 2001

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