What happens to the husband’s retirement decision when the wife’s retirement incentives change?

Int Tax Public Finance DOI 10.1007/s10797-016-9427-y What happens to the husband’s retirement decision when the wife’s retirement incentives change? Håkan Selin1,2 © The Author(s) 2016. This article is published with open access at Springerlink.com Abstract In this paper, I exploit population-wide administrative data and a Swedish occupational pension reform, which primarily affected a subgroup of female workers, to recover the effect of the wife’s retirement incentive on the husband’s retirement behavior. I estimate a sharp relative decrease in the retirement probability of 63-yearold wives who were treated by the reform. However, there was no significant response of their husbands, and this finding is surprisingly robust. This suggests that crosseffects (from the wife to the husband) are substantially smaller than the direct effects of the wife’s own incentive on the wife’s retirement. Keywords Joint retirement · Retirement age · Occupational pensions JEL Classification H55 · J13 · J21 1 Introduction Several studies (e.g., Hurd 1990; An et al. 2004; Schirle 2008) document a strong correlation in spouses’ retirement behavior. However, considerably less is known about the causal impact of one spouse’s retirement incentive on the other spouse’s retirement. Suppose that the wife’s pension benefit accrual increases. If the substitution effect dominates, the wife works longer. But to what extent is the husband’s labor supply affected? This is a key issue in policy design. If complementarities in leisure are B Håkan Selin 1 Institute for Evaluation of Labour Market and Education Policy (IFAU), 751 20 Uppsala, Sweden 2 Uppsala Center for Fiscal Studies at the Department of Economics, Uppsala University, Uppsala, Sweden 123 H. Selin important, a delayed retirement age of female workers potentially leads to an aggregate increase in labor force participation rates of elderly males. In this paper, I exploit a pension reform, which primarily affected a subgroup of female workers, to recover the effect of the wife’s retirement incentive on the husband’s retirement behavior. Before 2001, broad categories of Swedish local government workers in female-dominated occupations were entitled to retire with full pension benefits already at the age of 63. This possibility was abolished for those turning 63 in 2001. At the same time, there were no major changes in the private sector occupational pension plans. This enables me to compare couples in eligible and ineligible cohorts where the wife prior to retirement was a local government employee and private sector employee, respectively. Hence, spillover effects can be examined in a transparent way using graphical evidence and administrative data containing the entire Swedish population. In a difference-in-difference setup, I estimate a sharp relative decrease in the retirement probability of 63-year-old wives in the local government sector in the years following the reform. Seen over the whole post-reform period 2001–2005, the relative decrease amounts to around 20 percentage points as compared to the pre-reform year 2000. This significant own response is consistent with earlier studies (e.g., Karlström et al. 2011). However, there was no significant response of their husbands, and this finding is surprisingly robust. In the most preferred model, which includes a full set of control variables, the point estimate of the treatment effect is 0.007. The 95 % confidence interval ranges from −0.028 to 0.041. Accordingly, large cross-responses for husbands can be ruled out. This suggests that cross-effects (from wife to husband) are substantially smaller than the direct effect of the wife’s own incentive on the wife’s retirement. One potential explanation is that there was a strong norm of private sector workers to retire at 65 in Sweden. Such a strong norm might attenuate the husbands’ cross-response. A couple of things are worth pointing out, however. First, the results presented in this paper are still consistent with small cross-responses between spouses; the upper limit of the 95 % confidence interval for the female response is −0.157 and the corresponding lower limit for the husbands’ response is −0.028. Thus, cross-effects of approximately 1/5 of the wives’ response cannot be ruled out. Second, the reform used for identification affected wives’ retirement behavior at age 63. This raises some issues concerning external validity. On average husbands tend to be older than their wives. Consequently, a large number husbands married to wives treated by the reform were aged 65 and above and retired and, hence, not in the estimation sample. In practice, the couples studied in this paper are couples where the age difference is small or where the husbands are younger than their wives. This is a very interesting population, but admittedly not fully representative. Third, the data source used in this paper entails only a limited number of pre-reform years. Ideally, one would have liked to verify the common trend assumption in an even better way. A final caveat is therefore that the causal interpretation of the estimated parameters should be made with some caution. Still, the analysis is arguably more transparent and compelling than earlier studies. The structure of this paper is as follows. Section 2 briefly discusses the previous literature. Section 3 contains an informal discussion about the theoretical framework. 123 What happens to the husband’s retirement decision when... The Swedish occupational pension system, which provides the source of exogenous variation exploited in the paper, is described in Sect. 4. In Sect. 5 I discuss the empirical specification. Section 6 provides a description of the data source and a descriptive analysis. Section 7 reports the regression results, and Sect. 8 concludes the paper. 2 Previous literature Most papers on retirement behavior abstract from the interaction between spouses. As discussed by Hurd (1990) a plausible reason for the historical neglect of the joint nature of retirement decisions is that female labor force participation historically has been low in most industrialized countries. Even though the literature has been growing in the last two decades it is still small. A majority of papers on the topic do not use reforms for identification. Important contributions along these lines are Blau (1998), Mastrogiacomo et al. (2004), Zweimüller et al. (1996), Coile (2004), Gustman and Steinmeier (2000, 2004) and Harnæs et al. (2006). Several earlier papers examining the interdependence between spouses’ retirement decisions (e.g., Coile 2004; Kapur and Rogowski 2007; Stancanelli 2012; Zweimüller et al. 1996) found an asymmetry in the way spouses react to each other’s incentives: husbands are sensitive to changes in their wives’ incentives but the opposite does not hold true. In particular, Coile (2004) estimated the spillover effects of the wives’ retirement incentives on the husbands’ retirem (...truncated)