Pension Reform and Labor Supply - Flexibility vs Prescription

Erik Hernæs, Simen Markussen, John Piggott, Knut Røed

We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to pension reform strategies that rely on changes in work incentives (flexibility) or access ages (prescription), respectively.

We find that increasing the returns to work is a powerful policy: The removal of an earnings test, implying a doubling of the average net take-home wage, led to an increase in average labor supply by 7 hours per week (30%)  at age 63 and by 8 hours (46%)  at age 64. The responses primarily came at the extensive margin.