Labor supply on the eve of retirement
We study two recent changes in incentives to work facing 67-69 year old workers in Norway: an earnings test reform which increases current earnings from work, and a pension system maturation which removes pension accrual from work. Within a difference-in-differences framework, we exploit these changes to investigate the effects of economic incentives. We find the earnings test reform has large effects, while the pension system maturation has no significant effects. The findings confirm that 67-69 year olds can adjust their work efforts to economic incentives, but do so only to thoses related to current income and not to future pensions.
This paper addresses a key issue in the literature on retirement and pension schemes: the absolute and relative importance of current income and future pension entitlements for labor supply behavior in the crucial years around common retirement ages. We separate and compare these two effects by taking advantage of two changes in the incentive structure in the Norwegian pension system. The first is an earnings test reform, which implies a pure change in effective tax rate on labor income after retirement. The other change is caused by the maturation of the Norwegian National Insurance Scheme (NIS) old age pension rules, which involves a pure change in the incentives to work in terms of social security wealth. The two incentive changes are large and of comparable magnitude.