Retirement Behaviour in Austria: Effects of Incentives on Old‐Age Labour Supply

Abstract

We provide an extensive analysis of retirement behaviour in Austria with a special focus on the role of incentives delivered by the tax and benefit system in determining individual retirement decisions. A comprehensive microsimulation model of the Austrian pension system is applied to calculate retirement benefit entitlements and forward‐looking incentive measures (social security wealth, accrual rate, peak and option values) on an individual basis. We use the calculated incentive measures as the main explanatory variables in probit models to explain retirement decisions. We base our microsimulation and estimations on an extensive administrative Austrian data set. These data contain information on more than 300,000 new retirees from the period 2001–11. We provide robust evidence that incentive measures are well suited to explaining individual retirement decisions.

Retirement and healthcare utilization

“…5 The low level of labor force participation among the elderly can be attributed partly to disincentives provided by the Austrian pension system (Hofer and Koman, 2006). Hanappi (2012) calculates Austria's social security wealth and accrual rates and finds that social security wealth peaks at the age of 63 for men, hence creating strong disincentives for working beyond that age. To smooth the transition into retirement, the Austrian government introduced in the early 2000s old-age part-time schemes for older employees, where the working-time reductions of elderly workers are subsidized.…”

The Role of Labor Demand in the Labor Market Effects of a Pension Reform

“…According to Stock and Wise (1990) and Hanappi (2012) we define SSW as We calculate the SSW for each individual and for each age on a monthly basis. We set the planning age, P, at 55 years and 1 month.…”

“…For the standard life tables, we distinguish according to gender, cohort, and age. We choose the usual annual discount rate of 3% (0.25% per month) (Hanappi, 2012;Börsch-Supan et al, 2004;Hanel, 2010).…”

“…Because the earliest possible age for receiving a pension in our sample is 60 years, we choose the SSW at the age of 59. The wealth effect on retirement is documented inBerkel andBörsch-Supan (2004), Börsch-Supan et al (2004), Börsch-Supan and Coile (2018),Hanappi (2012), andHanel (2010). Labor market exit rates by age (monthly data) and cohort.…”

Seniority wages and the role of firms in retirement

“…Hofer and Koman (2006) conclude that the low labor force participation among the elderly can be attributed to some extent to disincentives of the Austrian pensions system, which provides too many incentives to retire early. Hanappi (2012) computed the social security wealth and accrual rates for Austria. He finds that the social security wealth peaks at age 63 for men, hence creating strong disincentives to work longer than 63.…”