26. April 2017

Cluster-Seminar Öffentliche Finanzen und Lebenslagen

The Value of Partial Retirement for Labor Supply, Public Balances and Income Inequality - Evidence from a Structural Analysis


26. April 2017
12:30 - 13:30


DIW Berlin im Quartier 110
Room 3.3.002C
Mohrenstraße 58
10117 Berlin


Songül Tolan

This paper develops a structural dynamic retirement model to investigate effects and corresponding underlying mechanisms of a partial retirement program in Germany on labor supply, fiscal balances and the pension income distribution. The structural approach  allows to disentangle the two counteracting mechanisms that drive the employment effects of partial retirement: 1) the crowd-out from full-time employment, and 2) the movement from early retirement or unemployment to partial retirement. It also allows to investigate the isolated role of financial compensations in a partial retirement program. The analysis is based on a unique administrative dataset that collects biographical information on full employment histories and combines information on partial retirement take-up with information on individual pension levels. For this purpose I subsequently perform three counterfactual policy simulations: 1) full access to partial retirement 2) an increase of the normal retirement age from 65 to 67, and 3) Adding wage and pension compensations to partial retirement. The results show negative employment effects but potentially positive fiscal consequences as well as a reduction in pension income inequality when partial retirement is introduced. Wage and pension compensations in partial retirement do not substantially affect employment behavior but pension compensations proof necessary to avoid an increased risk of old-age poverty when access to partial retirement is unrestricted.