Labor Supply and the Pension Contribution-Benefit Link

The paper presented in this Mannheim Applied Seminar estimates the impact of public pension incentives on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution scheme for men born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, the authors estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. The authors also estimate a lifecycle model that matches these results. The model implies that the change in the contribution-benefit link from the reform increases employment among those in their 30s but decreases it at older ages, reducing overall labor supply across the lifecycle by three months on average.