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Do buy‐outs of older workers matter? Estimating retirement behavior with special early retirement offers

Daniel Hallberg (Institute for Futures Studies, Stockholm, Sweden)
Matias Eklöf (Svenska Handelsbanken, Stockholm, Sweden)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 15 June 2010

1196

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

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Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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