Can I stay or should I go? Mandatory retirement and the labor-force participation of older workers

tirsdag, 31 mars 2020

Retirement is commonly described as a pure labor-supply decision, despite the potential importance of the demand side. This partly reflects that the two dimensions are often difficult to disentangle. I here manage to overcome this difficulty by using a unique natural experiment, the progressive ban on mandatory retirement in France in the 2000s.

Drawing on an extensive administrative dataset, I use reform-induced inter-industry variations in mandatory retirement legislation, thereby separating this factor from other retirement determinants, such as financial incentives. I find that the demand-side determinants through mandatory retirement do affect retirement patterns: the exit rates from employment are estimated to be 10% higher when mandatory retirement is possible. This effect is mostly driven by individuals with high earnings, steep wage profiles and good health. Second, as the mandatory retirement age coincides with the full-rate age, I reveal a previously unexamined determinant of the bunching in retirement distribution at this age. Mandatory retirement is estimated to explain 12% of the observed spike at the full rate.