The Influence of Pensions on Labor Supply

We cast new light on the influence of pensions on labor supply. To do so, we compare the retention patterns of pension-eligible workers to those of pension-ineligible ones, allowing us to non-parametrically identify the counterfactual in large, administrative data. Pensions exert a retentive force as workers approach the eligibility threshold and apply strong expulsive pressure thereafter (since employees lose pension wealth by remaining employed once eligible). Pension incentives induce 5 percent of employees to retire later and 12 percent of employees to retire earlier. On net, pensions reduce the average age of retirement by one year. Retirement incentives appear to have no material effect on the labor-supply decisions of young workers.