Abstract: This paper studies the short term and micro level effects of the number of jobs released through early retirement on labour market outcomes for young potential entrants. Causal estimates of old-young substitution effects in local labour markets are obtained by means of instrumental variable estimation, exploiting a unique administrative data set covering the entire population of Norway and exogenous variation created by the gradual phasing in of an early retirement programme. The resulting short term substitution effects are rather sizable: For every additional early retirement pensioner there is room for one new labour market entrant.