Financial Incentives and Heterogeneity in Retirement Behavior

Over the past few decades different reforms have come into force which aim at keeping older workers in the labor market longer. We evaluate the 1992 pension reform in Germany which gradually introduced actuarial deductions for early retirement between 1997 and 2004. This gradual introduction offers exogenous cohort-specific variation for the identification of the causal effect of financial incentives on the retirement decision. Our research question is whether individuals postpone benefit claiming as a reaction to the introduction of actuarial deductions. In addition, we want to study heterogenous reform effects since the literature on the heterogeneity of reform effects is to date relatively sparse. In more detail, we study whether there are differences in the claiming responses for individuals working in physically demanding jobs in comparison to individuals in non-manual jobs. We estimate Cox proportional hazard models using SHARE-RV data which offer a direct linkage of administrative data from the German public insurance with the survey data from the Survey of Health, Ageing and Retirement in Europe (SHARE). Results show that the introduction of actuarial deductions in Germany led to a postponed pension benefit claiming date. Physically demanding jobs seem to be related to less flexibility in the reaction to the financial incentives.