Cluster-Seminar Public Finances and Living Conditions

(joint work with Lars Felder, Johannes Geyer, and Peter Haan)

Despite growing demographic pressure, a reform in Germany has lowered the full retirement age (FRA) temporarily for early starters. In this paper we analyze whether the reform was well targeted. Specifically, we study if the early retirement scheme benefits workers with high job strain or if workers with better jobs and the potential to continue employment at older ages are the main beneficiaries of this pathway. For the empirical analysis we use high quality administrative data from the Federal Employment Agency covering the complete employment biographies of individuals and including information about the job strain at the individual level. We focus on men in West Germany as for them information on child-related pension entitlements which is incomplete in the data is usually unimportant and the information on their employment history is included in the dataset also for periods before German reunification. We exploit policy variation induced by the pension reform using a Difference in Differences Design. The reform initially reduced average labor market exit age by about nine months corresponding to around 4.5 months for each year the FRA was lowered. The impact decreased considerably when the FRA was raised again gradually. The effect is stronger for individuals working in demanding occupations. The result applies to the average job strain over the full career as well as to the average job strain in the last years before retirement.