Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners

Rob Euwals 1, Elisabetha Trevisan2
1CPB, The Netherlands, 2Tilburg University, The Netherlands, 3Netspar, The Netherlands, 4IZA, Germany

This paper investigates the impact of financial incentives on early retirement decisions of Dutch workers in the health sector. Using administrative data from the second largest pension fund in Netherlands we analyze early retirement behaviour of high and low wage earners, and how they react differently to financial incentives. We use two identification strategies. First, by exploiting exogenous variation in Social Security Wealth over birth cohorts and by using several measures of financial incentives, we analyze their effect on the retirement probability of individuals who are eligible to the old generous early retirement scheme. Second, we use a regression discontinuity design by comparing individuals who are eligible and non-eligible to the old generous early retirement scheme on the basis of their birth cohort. The empirical results confirm predictions of the standard life cycle model, and show that low wage earners are more sensitive to financial incentives.

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