Working Horizon and Labour Supply: The Effect of Raising the Full Retirement Age on Middle-Aged Individuals

Abstract

This paper analyses the effects of raising the statutory full retirement age on the labour force participation of middle-aged individuals and their partners. Identification relies on a difference-in-differences setting that exploits the large heterogeneous increase in the age eligibility for retirement caused by an unexpected Italian pension reform. We detect a sizeable increase in the participation rate of middle-aged women that spills over into their husbands' labour supply, who choose to postpone their retirement decision.

Does a Longer Work Horizon Affect Offsprings' Labour Market Outcomes?

“…Bertoni et al (2018) show that an increase in MRA due to a 2004 Italian social security reform increased health-promoting behaviours in the form of an increased likelihood of regular exercise, a decrease in the probability of being obese and an increase in the probability of reporting a high satisfaction with own health among a cohort of 41-54 year old Italian workers. Carta and De Philippis (2021) show that the Fornero reform of 2012 significantly increased labor market participation, employment and unemployment rates of 45-59 year old Italian women. Although these effects were mostly insignificant for 45-64 year old Italian men, they find that an increase in the wife's working horizon has led to a positive and significant effect in the husband's labour market participation within the family.…”

“…For the men, the sample has been restricted to those with at least 20 and less than 40 years of contribution. Carta and De Philippis (2021) argue that Italian Social Security Institute records show that the discontinuous spells in individuals' careers are concentrated before the age of 35 (because of maternity leave periods or longer study paths) and after the age of 60, and the possible error generated by the assumption of continuous future contributions is minimized under this mode of sample restriction. Thus, I refer to the sample of 45-59 year old mothers with at least 10 and less than 40 years of contribution as the sample of 'eligible mothers' and the sample of 45-64 year old fathers with at least 20 and less than 40 years of contributions as the sample of 'eligible fathers'.…”

“…It is to be noted that this differential of e49,563 is a lower bound estimate because the simulation has been done by assuming average parameter values of only employed individuals. It disregards the increase in lifetime earnings achieved due to an increased participation of women who were previously out of the labour force and became active due to the introduction of the reform (see Carta and De Philippis, 2021). Since the reform induced an increase in labour force participation only in the part of females but not males, the true differential increase in lifetime earnings can be expected to be even higher between the two genders.…”

“…1 While most of the existing research has centered around the effects of pension reforms on older workers who would have been retired in the absence of the reforms (direct effect), some papers have studied its effects on younger workers who have been affected by the reforms but are not at the verge of retirement (perspective effect). Recently, Carta and De Philippis (2021) have shown that the pension reform of 2012 in Italy (called the Fornero reform) which increased the Minimum Retirement Age (MRA) to be eligible for pension benefits, has led to positive and significant increases in the labour participation and employment rates for women aged 45-59. For men aged 45-64, these outcomes did not see a significant increase.…”

“…The age band of 15-29 is motivated by the definition of NEET which is usually defined for this age group and in Italy, one also becomes legally eligible to work at the age of 15. I use a multi-valued treatment difference-in-differences technique similar to Bertoni et al (2018) and Carta and De Philippis (2021) that exploits variation in the increase in MRA within cells defined on the basis of age, gender, years of contribution and sector of employment. I show that a 1-year increase in maternal work horizon increases the probability of coresiding offsprings aged 15-29 to be a first job seeker by 1.96 percentage points (19 percent).…”