Do buy‐outs of older workers matter? Estimating retirement behavior with special early retirement offers
Abstract
Purpose
This paper aims to look at model retirement behavior with a focus on early retirement where there is an option for “buy‐outs”. An employer can offer employees generous pension programs if the employees agree on early retirement. Earlier studies have neglected such offers, but in doing so, estimates of the individuals' responses to financial incentives in a retirement decision are likely to be biased upward.
Design/methodology/approach
The authors propose an estimation strategy where the retirement decision and the accesses to early retirement pension (ERP) offers are estimated in a simultaneous equation system, yielding unbiased estimates of the model parameters. They apply the model using detailed Swedish register data.
Findings
The results indicate that the marginal effects in retirement probability with respect to a change in financial incentives is less pronounced if ERPs are accounted for. Further, results imply that the early retirement probabilities would decrease, depending on year, by 14‐28 percent for males and 7‐18 percent for females if ERP offers were absent.
Research limitations/implications
As the motives for early retirement pensions most likely stem from how the collective agreement occupational pensions are financed, this emphasizes the need for a debate on the preferable construction of these systems. This becomes particularly important in view of the increased old age dependency ratios that are expected in the near future.
Originality/value
Although these offers have important policy implications they have received limited attention. This paper fills an important gap in the existing pension literature, and it analyzes early retirement and tries to assess the importance of special early retirement pension programs for these outcomes.
Keywords
Citation
Hallberg, D. and Eklöf, M. (2010), "Do buy‐outs of older workers matter? Estimating retirement behavior with special early retirement offers", International Journal of Manpower, Vol. 31 No. 3, pp. 337-359. https://doi.org/10.1108/01437721011050611
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited