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

What is it about?

We examine whether easy and early access to old-age benefits induce older workers to become inactive. We use Polish LFS data. We find added worker effect prevailing over discouraged worker effect. The latter arises after a few quarters and is asymmetric. Females permanently leave the workforce. More males leave the workforce in contractions than re-enter in expansions. If old-age benefit becomes the main source of income, the worker (after 1 year) is 8 to 20 times more likely to exit the market than unemployment or social welfare beneficiaries. Our findings support higher retirement age—the age when workers become eligible for old-age benefits.

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Why is it important?

We hypothesise that easy and early access to old-age benefits demotivates workers, if they are not yet at the age when they are incapable of earning on their own. This statement is strong and ignores the social perspective. However, if we assume that workers start receiving old-age benefits earlier than when they are no longer able to earn on their own, we neglect the interests of younger workers whose remuneration has to finance this policy.