Public Pensions and the Strategic Timing of Formal Employment

• In Event: The Impacts of Public Pension Programs

Abstract

Public pensions may influence labor supply throughout the lifecycle. We study how pension eligibility regulations impact retirement and earlier-in-life labor supply in Ecuador, where a worker's eligibility age depends on the number of years they contributed to social security. First, we use administrative data to document spikes in retirement at eligibility ages. Next, we show these retirement spikes are consistent with economic incentives and driven by different groups who begin formal work at different ages. Finally, we use survey data and a regression discontinuity design to investigate whether eligibility rules influence earlier-in-life decisions about when to begin formal employment. We find a discontinuous increase in transitions to formal work at age 50, consistent with forward-looking people timing formal employment to minimize social security contributions while maintaining benefit eligibility. We analyze how workers make these transitions and find a key role for family firms.

Author

• Jonathan Leganza, Clemson University