Understanding retirement decisions

Within the Understanding Retirement Decisions project, various issues related to the effects of the Norwegian pension reform were dealt with. Here is a brief summary of a selection of the research contributions: Pension reform and labor supply, by Erik Hernæs, Simen Markusen, John Piggott and Knut Røed The Norwegian pension reform in 2011 makes it possible to study the effects of (at least) two policy interventions with great relevance for many other countries; increased labor incentives and reduced access age for an actuarially adjusted pension. The effects of these two approaches are those studied by Erik Hernæs, Simen Markussen, John Piggott and Erik Hernæs in the article Pension reform and labor supply. The study shows that the increased labor incentives, as a result of the restructuring of the AFP, provided a significantly increased job offer. The reduction of the earliest access age, from 67 to 62 years for employees without AFP, on the other hand, had limited importance for the labor supply, at least on the extensive margin. The article is published in the journal Journal of Public Economics The Retirement Age and the Demand for Senior Workers, by Trond Vigtel The paper examines the effect of increasing the distance to the minimum legal retirement age on the hiring of senior workers. By studying the Norwegian pension reform of 2011, I identify a negative effect on the hiring of senior workers. The results suggest that the decrease was mainly caused by a negative shift in the hiring of ?risky? senior workers, defined as individuals with prior receipt of health-related benefits (receipt of either sick-leave benefits or work assessment allowance) and blue-collar workers (workers with low educational attainment). This lends support to the notion that risk-averse firms are less willing to hire senior workers when the minimum legal retirement age is increased. The paper is published in Labour Economics. Health, Longevity and Pension Reform, by Tobias Laun, Simen Markussen, Trond Christian Vigtel and Johanna Wallenius Most western countries stuggle to make the pension system sustainable to increased longevity. One can think of several policy measure for dealing with this, but what is the ?best? in terms of efficiency and equity concerns? To answer this, we are developing a dynamic structural macro model that is calibrated to Norwegian registry data. We then study the effects of four possible pension reforms that keep public spending for the 1969-1973 cohorts at the same level as for the 1949-1953 cohorts. Of the four alternative pension reforms, we find that a proportional reduction in retirement pension and disability benefit is preferred from a welfare perspective for all educational groups, but it also leads to increased inequality. The article is published in the journal «Journal of Economic Dynamics and Control». Flexible pensions and labor force withdrawal, by Erik Hernæs, Zhiyang Jia, John Piggott og Trond The Norwegian pension reform implied that a large group of private sector workers, those previously without access to early retirement (AFP), had reduced the earliest retirement age from 67 to 62 - without changing their long-term financial incentives to work. Put another way, they got the opportunity to retire much earlier than before, but had to pay for it themselves. How did this affect their labour supply? In this study, the authors show that this led to several people choosing to reduce their job offer, without stopping working completely. In total, this group reduced their job offer by about 18 per cent. The article is published as CEPAR WP 2019/3. Youth employment when seniors work longer, by Trond Vigtel Has increased employment among seniors an unintended "side effect" in the way that it negatively impact young employees early career progression? With the help of the Norwegian pension reform, which gave a significant jump in employment for certain groups of employees, Vigtel tries to answer this question empirically. To do so, he starts out with a sample of young workers in their 20s. Some of these work in firms being part of the early retirement program (AFP) meaning that their senior employees got substantially stronger work incentives by the reform, others do not. Some work in companies with an age composition that makes pension reform important, while others do not (no employees in their late 50s early 60s). Using an econometric model, he can then estimate the effect of increased employment among the elderly on these young workers' career progression. He finds that increased employment among the elderly causes more young people to change jobs, primarily to companies outside the AFP area - where the employment of older people has not increased correspondingly. The article is included in Vigtel's doctoral dissertation «Understanding retirement decisions».

Prosjektet har bidratt til økt kunnskap om den norske pensjonsreformens virkninger og bi-virkninger. Spesielt gjelder dette virkningen av økonomiske insentiver og redusert tilgangsalder for eldres sysselsetting, betydningen av levealdersjustering og hevet tidligste pensjonsalder for offentlige kostnader og økonomisk ulikhet, samt "bivirkninger" av økt sysselsetting for yngre arbeidstakere. Denne kunnskapen er relevant både for politikkutforming i Norge og i utlandet og er formidlet både til et nasjonalt og et internasjonalt publikum. Prosjektet har også finansiert en doktorgrad (Trond Vigtel).

This project aims to produce research of the highest quality, making use of detailed administrative data for Norway and employing a research group who has proved ability to publish research papers in the best international scientific journals, using three different methodical approaches. The following questions are central in this project: 1) What are the labour supply effect of completely removing the earnings test against labour earnings for pension take-up for the age group 62-67? 2) What are the labou r supply effect of reducing the earliest access age to pension wealth from 67 to 62 in an actuarially adjusted pension system? 3) What are the labour supply effects of introducing longevity adjusted pensions, in fact a downward adjustment of annual pensi on payments as longevity increases? 4) How are workers using the increased flexibility in the pension system, allowing for a number of part-time choices between full work and full retirement, and how will this in turn affect total labour supply? 5) To whi ch extent are retirement decisions facilitated or limited by external factors? What is the role of family, health and productivity, employers' willingness to accommodate senior workers and aggregate labour demand? 6) Which factors determine pension take-u p, conditional on labour supply? What is the role of health, family and risk-preferences? 7) What is the role of progressive taxation for decisions on pension take-up and labour supply? Can preferences for early take-up (more than a "standard homo econom icus" model would predict) imply that labour supply effects are moderated because of progressive taxation?