Employment effects of Incentivized Gradual Retirement Plans

We investigate the effect of Incentivized Gradual Retirement plans (GRPs) on the retirement behavior of older civil servants and the employment of younger civil servants. GRPs encourage later retirement of older workers, by offering older employees a reduction in working hours with only a limited decrease in net earnings, and little to no reduction in pension accrual. A second policy aim is that municipalities use this freed up capacity to hire more young employees. We exploit variation in the availability of GRPs between Dutch municipalities to identify its employment effects. Using a difference-in-differences design, we find that GRPs have a positive effect on employment of civil servants (+7.1 full time weeks on a yearly basis). This positive effect is rooted in both an increase in hours worked (intensive margin) and an increase in the retirement age (extensive margin). We do not find an increase in the hiring of workers in the age group 18-30.