Early retirement in the Swedish pension system

In most industrialized countries, the average age of exit from the labor market has decreased dramatically over the last 20 years despite better health among the old. One possible explanation for falling labor force participation rates is the introduction of new pathways to early retirement by public and private pension systems. Sweden constitutes an interesting example of this phenomenon. Unlike other countries, Sweden has introduced partial retirement at age 60 as a separate mode of retirement. At the same time, labor force participation rates have remained high in Sweden compared to other countries. This dissertation examines how the special features of the Swedish pension system have affected retirement behavior among older workers.;The findings show that the Swedish pension system produces a very flat budget constraint for workers between age 60 and 65, creating strong incentives to partially retire at the first possible date. The results indicate that most individuals who partially retire come from the group who otherwise would have continued working without reduction until the normal retirement age reducing labor supply as hypothesized. Women are to a large extent constrained by rules on labor supply to be eligible for partial retirement and are less likely than men to partially retire. Given women's higher labor supply elasticity, a possible response to this constraint is an increase in labor supply before age 60. Small differences in retirement behavior between occupational groups were found. The findings also show a large difference in retirement behavior in 1974 and in 1981. Simulations indicate that this difference can be explained by differences in tastes between 1974 and 1981 rather than by differences in the budget constraint.;This research makes two contributions to the literature. Few studies of the Swedish pension system have been undertaken using microeconomic survey data. There is an ongoing discussion in Sweden and elsewhere about the design of pension systems. A model of early pathways to retirement can be a foundation for policy discussions regarding changes in the design of pension systems. The results should be of interest to policy makers in the U.S. and other developed countries as they search to lower work place barriers confronting older workers.;A model of partial retirement is developed and tested empirically using retrospective data from before and after the introduction of partial retirement. It is hypothesized that the introduction of partial retirement has decreased labor supply among older men age 60 to 65. Women, on the other hand, are less likely to choose partial retirement. It is also postulated that the response to the partial retirement system will be different between occupational groups. In particular, blue-collar workers are more likely to choose partial retirement than white-collar workers.