Working papers
Partial Retirement and Labor Supply: Quasi-experimental Evidence from Sweden
Accepted at the Canadian Journal of Economics
The declining share of the working-age population (20-64) has led many countries to introduce social security reforms to extend the working lives of older employees. While reforms such as raising the early retirement age can effectively achieve this goal, they are often perceived as forced. Partial retirement schemes, which allow individuals to work part-time while receiving a significant portion of their previous wages, offer a more flexible alternative. However, the impact of these schemes on overall labor supply remains ambiguous. On one hand, partial retirement may increase labor supply by encouraging part-time work over early retirement; on the other, it may reduce labor supply if full-time workers choose to shift to part-time work. This paper investigates these effects by studying the introduction of a partial retirement scheme for central government employees aged 61-65 in Sweden. The findings show a 6.5% drop in earnings, suggesting that generous partial retirement terms, which replace a substantial share of prior income, incentivize a shift from full-time to part-time work, thereby reducing the overall labor supply.
Labor market effects of increasing the early claiming age in a flexible pension system (with Oystein Herneas, Johannes Hagen, and Stefanie König)
R&R at the Labor Economics
We study a reform that raised the earliest eligibility age for public pensions from 61 to 62. Using rich Swedish administrative data and a difference-in-differences design that compares adjacent age groups differentially affected by the new threshold, we assess the reform’s effects on pension claiming, labor supply, social insurance benefit receipt, and disposable income. Prior to the reform, around 10% of individuals claimed their public pension at age 61. The reform mechanically reduced this share to zero, but also induced delayed claiming beyond the new threshold, including postponed occupational and private pension claims. Employment increased by up to 1.3 percentage points, and sickness and unemployment benefit receipt rose by 0.6–0.9 and 0.1–0.2 percentage points, respectively. These responses were concentrated among low-income individuals who were already working. For this group, increased work offset the delayed pension access and left disposable income largely unchanged. In contrast, non-working low-income individuals and the self-employed experienced a substantial short-term decline in disposable income, ranging from 7 to 10%. Our findings point to liquidity constraints and behavioral responses as key mechanisms in eligibility age reforms within a flexible, actuarially neutral pension system where work and pension claiming are decoupled. Overall, the reform had a modest yet positive net fiscal impact.