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Earnings Distribution and Labour Supply after a Retirement Earnings Test Reform

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  • This paper is part of the Frisch Centre project ‘1307 Strategic research programme on pensions’ financed by the Ministry of Labour and Social Inclusion. Data from Statistics Norway have been essential for the project. We thank John Piggott, Oddbjørn Raaum, Knut Røed, Steinar Strøm and two anonymous referees for valuable comments to earlier versions. The usual disclaimer applies.

Abstract

Norwegian administrative data are used to evaluate the impact of a doubling of the threshold in the retirement earnings test. We find almost no impact on the extensive margin, but a positive effect on the intensive margin. This positive effect is uneven over the earnings distribution, and concentrated on workers around the threshold, increasing with exposure to the reform and leading to a decrease in earnings inequality. Individuals who remain active until retirement age respond more to the reform. Conditional on prereform earnings, we find little evidence that individual characteristics such as working histories influence the responsiveness to the reform.

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