How does increased retirement age affect women’s employment and health? Evidence from Italy

Abstract

This paper uses a pension reform in Italy to estimate how increased retirement age affect employment and health for women on the cusp of retirement. Using variation between birth cohorts and employing a difference-in-difference design, I estimate that an increase in retirement age by 2.75 or 3.58 years, depending on month of birth, reduced retirement by 50 percentage points between ages 61 to 64. Reduced retirement increased employment by 15.4 percentage points. The small employment effect is mainly because Italian women had already left the labor market before retirement age, and increasing retirement age was not effective at making those women to participate again. In contrast, almost a third of the women employed pre-reform substituted their work with disability pension, unemployment insurance or inactivity due to increased retirement age. Such substitution was especially large for blue-collar workers and those with a sickness history. I also find distributional health effects, where the probability to die between 61 and 65 increased for blue-collar workers due to delayed retirement. My results show that concerns regarding how increased retirement age could have distributional consequences should be taken serious.