Benefit Generosity and the Income Effect on Labour Supply: Quasi-Experimental Evidence

Authors

  • Alexander M. Danzer

    Corresponding author
    1. Ludwig-Maximilians-University Munich, IOS Regensburg, IZA Bonn, CESifo Munich, Germany
    • Corresponding author: Alexander M. Danzer, Department of Economics, Ludwig-Maximilians-University Munich, Geschwister-Scholl-Platz 1, 80539 München, Germany. Email: alexander.danzer@lrz.uni-muenchen.de.

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  • The author is grateful for valuable comments and suggestions by David Blackaby, Arnaud Chevalier, Natalia Danzer, Peter Dolton, Christina Gathmann, Lars Handrich, Timothy Hatton, Victor Lavy, Melanie Lührmann, Omer Moav, Robert Moffitt, Robert Poppe, Sarah Smith, Kenneth Troske, Jonathan Wadsworth, Joachim Winter, the editor Steve Pischke, two anonymous referees, as well as seminar and conference participants in Bristol, Essex, London, Mannheim, München, Perth, Regensburg and Shanghai. The ULMS data were kindly made available by the ESCIRRU consortium. Financial support from a Thomas Holloway Research Scholarship is gratefully acknowledged. All remaining errors are mine.

Abstract

This study uses an unanticipated, exogenous doubling of the legal minimum pension in Ukraine as a unique quasi-experiment to evaluate the income effect on various aspects of labour supply among the elderly. In contrast to previous studies, the unusually simple pension eligibility rule allows estimating a pure causal income effect. Applying reduced form difference-in-differences and regression discontinuity as well as instrumental variable methods on two nationally representative data sets yields a retirement semi-elasticity of 0.1–0.2. Men and women respond at different margins of labour supply but with similar overall effect.

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