The impact of raising the official retirement age on the actual retirement date of employees and their spouses
- Raising the official retirement age during the past decade led to an increase in the actual retirement age of individuals to whom the change in legislation applied
- In many cases, raising the retirement age of men contributed to increased employment of their spouses. In contrast, raising the official retirement age of women did not effect the employment of their spouse.
- The findings on the interdependencies of raising the official retirement age of spouses on their labor market participation indicate that it is important to analyze the increase in the retirement age in the context of a couple, as this will make it possible to correctly estimate the effects of the increase and to optimally design future pension reforms.
What is the impact of raising the retirement age on labor market characteristics of married couples? Does raising the retirement age of one spouse impact the retirement date and extent of employment of the other spouse? Research conducted by Edith Sand from the Bank of Israel’s Research Department and Shirlee Lichtman-Sadot from Ben-Gurion University estimated the effects of raising the official retirement age of men and women on the employment rates of married couples and on other labor market characteristics, with an emphasis on possible interdependencies between retirement decisions of the couple. The official retirement age is the age of eligibility for employment-related pensions and for means-tested old-age allowance.
The research examines the effects of the pension reform that was implemented gradually between 2004 and 2009. It deferred the retirement age for men (from 65 to 67) and for women (from 60 to 62). The study is based on administrative data that integrate the characteristics of married couples, as measured in the 1990s, with labor market data of the same couples 10 years later. The identification strategy of the research is based on comparing married couples of similar age configurations (that is, couples in which the men are the same age and the women are the same age) that were born up to 2 years before the threshold year, for which the retirement age was deferred (the control group) with couples who were born up to 2 years after the threshold year, for which the retirement age was deferred (the treatment group) and who were in the age ranges for the official retirement age being raised. (For example, couples in which the man was 65 and the woman was 60 before 2004, meaning couples born in earlier years for whom the retirement age was not raised, were compared with couples who were at those same ages after 2004, meaning couples born in later years for whom the official retirement age was raised.)
The study results indicate that raising the official retirement age of individuals increases their employment. However, the cross effects between spouses differ based on gender. The men’s employment rate grew by 7–8 percentage points as a result of the increase in their official retirement age (with the original employment rate at 29 percent), but is not impacted by the increase in the retirement age of their spouses. In contrast, the employment rate of women is impacted by the raising of their spouse’s retirement age: it increased by 6 percentage points as a result of the raising of their (women’s) official retirement age (with the original employment rate at 33 percent), and increased by 3–5 percentage points as a result of the raising of their spouse’s retirement age. However, for women whose official retirement age was raised, the raising of their spouse’s retirement age did not have an additional effect beyond the growth in the employment rate deriving from the raising of their own retirement age.
The results of the research highlight the importance of examining retirement-age reforms in the context of a couple, in view of the interdependencies of deferring the couple’s retirement ages. Other alternative estimations, which did not take into account the interdependencies of changes in spouses’ retirement age, indicate impacts that are smaller, by half, than the estimation calculated taking these impacts into account, as was done in the current research. As such, it is important to analyze the impacts of deferring the retirement age from a couples’ perspective, in order to optimally design future pension reforms.