Spillover Effects from a Delayed Retirement Age

In an effort to improve the long-term sustainability of the public pension system, the Dutch government announced via 2011 and 2012 reforms that it would gradually increase the Statutory Retirement Age (SRA) from age 65 towards age 67. The SRA is both the age at which individuals begin receiving a public pension and a “mandatory retirement” age, in that employees who wish to work past the SRA must be offered a new contract by their employer.

Ferrari et al. (2023) investigates the within-firm spillover effects of the delayed retirement of an employee, exploiting variation in the SRA of older workers’ from 65 years and 3 months to 66 years and 4 months. In particular, the paper studies the impact of delayed retirement of older workers on younger workers. The paper employs a two-step analysis to study Dutch firms’ responses to an increased SRA between 2013 and 2019. First, it uses an event study model to estimate the effects of a single worker approaching and reaching the SRA, referred to as a focal worker, on the outcomes of their firms and coworkers. Next, it uses a difference-in-differences model to examine the consequences of raising the SRA on the same outcomes.

The paper finds evidence that firms start hiring replacement workers a few months before a focal worker reaches the SRA. Additionally, after the retirement of a focal worker, younger coworkers experience increased promotions as well as hours worked and wages. The paper estimates that one six-month retirement delay within a firm reduces incumbent coworkers’ earnings by around €4,700 over a 21-month period around the event. Additional spillovers exist due to a delay and net decrease in hiring into the firm.

The paper uses these estimates to calculate the MVPF of a policy that increases the SRA by one month, taking into account the spillover effects on younger workers.