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 aim to increase the labor participation 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 negative effect on employment of middle and high-income civil servants between the ages of 60 to 64 (-443 and -824 hours, respectively). This negative effect is rooted in fewer hours worked, whereas the retirement age hardly changes. Employment of low-income workers, on the other hand, increases with 62 hours. Moreover, we do not find an increase in the hiring of workers in the age group 18-30.

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