The impact of easy and early access to old-age benefits on exits from the labour market: a macro-micro analysis

di Ewa Gałecka-Burdziak e Marek Góra; CeRP WP 152/15

We analyse whether easy and early access to old-age benefits tempts workers to become inactive. We examine the impact of old-age benefits in the light of the discouraged worker effect in Poland, a country severely experiencing the problem of population ageing. We identify cyclical properties in activity and discouraged worker rates, and estimate a set of logistic regressions to identify the determinants of exits from the labour market. In the macro analysis, the added worker effect prevails over the discouraged worker effect. The discouraged worker effect arises with a delay of a few quarters. This process is asymmetric; in duration for females and in size for males. Females often permanently leave the market, and males more likely leave the market in downturns than re-enter in expansions. In a micro perspective, if the old-age benefit becomes the main source of income for the worker within a 1-year interval, the worker is 8 to 20 times more likely to leave the workforce compared to those who receive unemployment benefits or social welfare benefits. Thus, our findings are in favour of a higher retirement age, understood as the age when workers become eligible for the old-age benefits.

Published: December 2015