IZA DP No. 5248: Intertemporal Substitution in Labor Force Participation: Evidence from Policy Discontinuities
published as "Nonparametric Evidence on the Effects of Financial Incentives on Retirement Decisions" in: American Economic Journal Economic Policy, 2016
This paper presents new empirical evidence on intertemporal labor supply elasticities. We use administrative data on the census of private sector employees in Austria and variation from mandated discontinuous changes in retirement benefits from the Austrian pension system. We first present graphical evidence documenting delays in retirement in response to the policy discontinuities. Next, based on the empirical evidence, we develop a model of career length decisions. Using an estimator that exploits the graphical evidence, we estimate an intertemporal labor supply elasticity of 0.30; this relatively low estimate reflects that the disutility of labor supply rises relatively quickly with additional years of work.