Working Paper: NBER ID: w20123
Authors: Per Johansson; Lisa Laun; Märten Palme
Abstract: We study how economic incentives affect labor force exit through different income security programs, old-age pensions as well as income taxes in Sweden. We use the option value for staying in the labor force as a measure of economic incentives and estimate an econometric model for the choice of leaving the labor market. Besides old-age pension, we focus on the Disability Insurance (DI), which is the most important exit path before age 65. By simulating the effect of different probabilities to be admitted DI we show how changes in the stringency of DI admittance affects labor supply among older workers through economic incentives.
Keywords: Disability Insurance; Old-Age Pension; Labor Force Participation; Economic Incentives
JEL Codes: J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic incentives (M52) | Utilization of disability insurance (DI) (J65) |
| €10,000 increase in the inclusive option value measure (J17) | Retirement rate (J26) |
| Health status (I14) | Retirement rate (J26) |
| Policy changes (J18) | Labor force participation (J21) |