It is never too late?

Evidence on increasing the retirement age in a transition economy

Oliwia Komada

Paweł Strzelecki

Joanna Tyrowicz

Group for Research in Applied Economics

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Low effective retirement age in aging population

HUGE FISCAL BURDEN

Issues common to many (not only transition) countries

Longevity ... ... aggravated with (really!) early retirement, see Fox (1997)

1975 2015 2060

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Low effective retirement age in aging population

average female exit age in 2006 in Poland: 52 years

Solutions:

introduce universal Defined Contribution systems

Poland 1999

gradually reduce the occupational privileges

Poland 2009

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Reform 2009

Prior to 2009 After 2009

W born before 1954 Experience 25 age 55 Experience 25 age 55

W born after 1954 Experience 25 age 55 Experience 25 age 60*

M born before 1949 Experience 25 age 60 Experience 25 age 60

M born after 1949 Experience 25 age 60 Experience 25 age 65*

• Selected occupation based on medical criteria

HUGE

85% of workers lost eligibility for early retirement

RAPID

final legislation was passed in 4th quarter of 2008

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Story beginning

Labor force participation

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Motivation

Percent of retirement by age and year for men

Motivation

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Percent of retirement by age and year for women

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Table of contents

1. Motivation Reform form 2009 natural experiment for regression discontinuity design

(No) result at the first sight

2. Hypothesis, data and method Hypothesis

Dataset

RDD method

3. Results Main result

Placebo test

Room for heterogenity

4. Conclusions

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Earlier insights

For the US (or other advanced economies): Krueger and Pischke (1992); Jensenand Richter (2003); Snyder and Evans (2006); Liebman et al. (2009);Mastrobuoni (2009); Blau and Goodstein (2010); Staubli and Zweimoeller(2011); Behaghel and Blau (2012), summarized wonderfully by Manoli andWeber (2014)

For transition economies:

Jensen and Richter (2003) for Russia

Danzer (2013) for Ukraine

Bottom line: „pass-through" is not complete, but people respond to changes inincentives

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Hypothesis

Does reform increase effective retirement age? lower flows to retirement

increase in labor force participation

lower flows to inactivity

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Data

Exploit the rotating panel

Compute the age on Jan 1st, 2009 (adequate up to 1 month)

Focus on transitions (earlier literature focuses on stocks)

Control for confounding factors (age, education, household structure)

Control for eligible/ineligible occupations

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Method: Regression discountity disign

Assigment

Outcome measurement

Transition to early retirement

-1 -0.25 0 0,25 1

Women bornin 4q 1954

Women bornin 1q 1954

Women bornin 3q 1953

Women bornin 1q 1953

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Results

RD estimation results:transition to early retirement

Parb

ability

of

transitio

nto

earl

yre

tire

ment

Time after the retirement age (1st January 2009)

Cut off point

Discontinuity

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Method: Regresion discontinuity design

Treated = 1 would have a right but lost it beacuse of 2009 Reform

Control Variables (heterogeneity)

Gender

Education

Small child in household

Other retired in household

Other worker in household

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Expectation and reality

Expectations Results

Large changes

Large discontinuitySignificant but small effect

Stronger effect for workers who losteligibility

Treatment variable insignificant

Heterogenous Effect Not observe

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Results

RD estimation results:parameter of cut-off and its significance

Model Coefficient Std. ErrZ-

statisticSignificance

level

Transition to earlyretirement 6%

-0.0270 0.0095 2.836 0.005

Remain active 94% 0.0108 0.0066 1.670 0.102

Transition to inactivity(age) 6%

-0.0269 0.0095 2.829 0.005

Transition to inactivity (tenure) 6% -0.0221 0.0095 2.324 0.020

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Results

But don't people always retire at retirement?

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Placebo test

RD estimation results:transition to early retirement

Siz

eof

dis

continuity

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Almost two thousand regressions

1 2 3 4

Reform quarter 0.3310***(0.048)

0.3311***(0.048)

0.3309***(0.048)

0.3312***(0.048)

Treatment 0.0000(0.016)

0.0000(0.016)

0.0000(0.016)

0.0000(0.016)

Other retire in hh -0.0437(0.028)

Other worker in hh -0.0331(0.029)

Kid in hh -0.0637**(0.027)

Female -0.0229(0.029)

FE for outcomes variables Yes Yes Yes Yes

Observations 2,575 2,575 2,575 2,575

Probit of likelihood to get a signicant estimator

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Sum up

Discontinuity: statistically significant, but economically small

Placebo test: similar size of discontinuity in other quarters (butinsignificant)

Heterogeneity possibly the discontinuities observed in the reform quarter slightly stronger in some group

of individuals than in others

Access to early retirement schemes willingness to retire no substantially smaller among the workers who lost the occupational

eligibility than among those who still could

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Conclusion

Discontinuity from the reform: small relative to the scope of the reform

Almost no heterogeneity

Would have happened even without the reform?

Questions or suggestions?Thank you for your attention!

Oliwia Komadao.komada@student.uw.edu.pl

More about our research on

http://grape.uw.edu.pl

Twitter: @GrapeUW

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References

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retirement age. American Economic Journal: Economic Policy, 4:41-67.

Blau, D. and Goodstein, R. (2010). Can social security explain trends in labor force participation of older men in the

United States? Journal of Human Resources, 45:328-363.

Danzer, A. (2013). Benet generosity and the income eect on labour supply: quasi-experimental evidence. Economic

Journal, 123:1059{1084.

Fox, L. (1997). Pension reform in the post-communist transition economies. In Nelson, J. M.,

Tilly, C., and Walker, L., editors, Transforming Post-Communist Political Economies. National Academy Press,

Washington, D.C.

Jensen, R. and Richter, K. (2003). The health implications of social security failure: evidence from the Russian

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Krueger, A. and Pischke, J.-S. (1992). The eect of social security on labor supply: a cohort analysis of the notch

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Manoli, D. and Weber, A. (2014). Intertemporal substitution in labor force participation: evidence from policy

discontinuities. CESifo Working Paper Series 4619, CESifo.

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Snyder, S. and Evans, W. (2006). The efect of income on mortality: evidence from social security notch. Review of

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