Hours of Work and Retirement Behavior
Using a novel dataset from the 2006 Portuguese Labor Force Survey this paper examines the impact of a voluntary reduction in hours of work, before retirement, on the moment of exit from the labor force. If, as often suggested, flexibility in hours of work is a useful measure to postpone retirement, then a reduction in working hours should be associated with retirement at later ages. Results prove otherwise suggesting that reducing hours of work before retirement is associated with early exits from the labor force. A reduction in hours of work seems to signal the worker's wish to retire sooner rather than to announce the desire of remaining in the labor market. This result may enclose the need for some alternative policy strategies regarding working hours.
Population aging is increasing the ratio of retirees to workers rising sustainability issues to Social Security systems. To ease financial pressures as well as to increase older workers labor force participation policy makers have been promoting the expansion of working lives finding measures that postpone labor market exit attractive.
This has been enforced through the elimination of mandatory retirement, the adoption of age discrimination legislation1 and/or increasing legal retirement age. Nonetheless, the effect of these measures on older workers labor supply is not straightforward. For instance, Shannon and Grierson (2004) show that making compulsory retirement illegal would have a small impact on the size of the older workforce and, for that reason, such a policy alone would not solve the problems associated with an aging population and the consequent reduction in the share of the population employed, while Ashenfelter and Card (2002), studying the effect of the elimination of mandatory retirement at age 70 on faculty retirement patterns, conclude that such elimination decreased by approximately two thirds the retirement rates of 70 and 71 year olds.
On the other hand, Adams (2004) suggests that age discrimination legislation increases employment among individuals that are in the legally protected age ranges and that there is a decline in retirement among the protected workers. Also, Neumark and Stock (1999) show that age discrimination laws lead to steeper age-earnings profiles in the labor market and that they strengthen the relationship between workers and firms, leading to the adoption of Lazear (1979) contracts. Furthermore, the authors find that age discrimination legislation increases the relative employment of older workers. Focusing on the labor demand implications of a change in the legal retirement age for women in Portugal, Martins et al. (2009) find that older women affected by the new law faced virtually no change in wages and working hours.