Anna D'Addio (OECD)

"Pension reform, retirement age and subjective well being: evidence from a german natural experiment"

21 March 2013, 12:00 pm

abstract

This paper examines the effect on the well being of current generations of pensioners of a reform to the public pension system in Germany which increases retirement age gradually to 65 for both men and women.

The well-being is evaluated using a life satisfaction variable as recorded in the German Socio Economic Panel. The reform was decided in 1992 and its implementation actually took place in 1997, when the cohort of men born in 1937 first reached 60 years of age and in 2000 when the cohort of women born in 1940 reached 60 years of age.

The identification of the welfare effect comes from the fact that the exposure of an individual to the pension reform varied by date of birth  and gender. Under these assumptions, the individuals could not self select in the policy change, so that so that the policy change itself can be seen as a natural experiment. A differences-in-differences estimator is then used to identify the effect of the reform. Treatment and control groups are comparable once age effects (through cohorts) are controlled for.

Given the difficulty to identify the different pathways to retirement for men in the dataset, the analysis focuses only on women. The main finding is that women aged 60-64 when the policy was introduced consistently show higher life-satisfaction according to all specifications used. This result is robust to a number of alternative specifications and the effect is sizeable.