Labor or Leisure? Labor supply of older couples and the role of full retirement age

This paper estimates the labor supply response when the spouse reaches full retirement age (FRA). We exploit the age difference within couples and changes in pension legislation in Switzerland to identify the causal effect. In contrast to the majority of previous contributions, we do not only estimate the effect on labor market participation (extensive margin), but also estimate the effect on the hours decision (intensive margin). We find that the labor force participation rate of women drops by around 3 percentage points in response to the spouse reaching full retirement age. We find no evidence that men adjust their labor force participation rate when their wife reaches FRA. At the intensive margin, we find only small and non-significant effects for both men and women. We argue that the response can be explained by complementarity in leisure and liquidity effects.

JEL Classification: H55, J14, J26, D13
Keywords: Full Retirement Age, Retirement Decision, Joint Labor Supply