Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2014:20: Pathways to retirement and the role of financial incentives in Sweden

Per Johansson (), Lisa Laun () and Mårten Palme ()
Additional contact information
Per Johansson: IFAU - Institute for Evaluation of Labour Market and Education Policy, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Lisa Laun: IFAU - Institute for Evaluation of Labour Market and Education Policy, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Mårten Palme: Department of Economics, Stockholm University, Postal: Stockholm, Sweden

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; option value; labor market exit; labor supply

JEL-codes: H55; J14; J26

47 pages, August 25, 2014

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