samlet årgang - Økonomisk Institut - Københavns Universitet

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NATIONALØKONOMISK TIDSSKRIFT 2005. NR. 2
two and a half years, VERP benefits were reduced to a maximum of 80 percent of the
unemployment benefit. After March 1, 1992, the reduction in VERP benefits after two
and a half years was removed for individuals who delayed retirement until at least age
63. They instead received a benefit equivalent to the unemployment benefit over the
whole VERP period (for further details, see Section 2).
While previous Danish studies of the response to changes in social security are
based on simulations, this paper reports results of a natural experiment. Such an experiment
may be useful in this regard because it allows inference of causal responses
in retirement behaviour to policy changes. By using the variation in explanatory variables
generated by policy changes, this approach allows the variation that is plausibly
exogenous to be obtained. Further, this variation is readily examined without the need
for strict structural modelling assumptions. A difference-in-differences estimator that
is adjusted for differential trends is applied. Researchers’ use of the difference-in-differences
framework in examining the response to changes in social security benefits is
limited 3 because social security programs most often are national programs in which
system parameters apply uniformly to all individuals and reforms are universal. It is,
however, possible to create a comparison group and apply the approach in this context
because not all individuals are eligible for the VERP benefits. 4 The comparison group
is people eligible for the Public Employee Pension (PEP, tjenestemandspension) (for
further information about this group, see Section 3).
The analysis is based on longitudinal register data. The dataset covers a representative
two percent sample of individuals and their spouses from 1980-1998. The results
control for the announcement of the policy change. Examining two different VERPsample
groups, changing the time period and conducting separate analyses for each of
the ages in focus constitute further controls.
The remainder of the paper is organized as follows: The VERP program and the
1992 changes are described in Section 2 and the PEP program in Section 3. Data are
described in Section 4 and empirical models are presented in Section 5. Section 6 presents
the results and Section 7 summarizes and discusses them.
2. Voluntary Early Retirement Pension (VERP, efterløn) and the 1992 changes
Not all individuals are eligible for the VERP benefits. To be entitled to these benefits,
a worker must meet a number of conditions. The conditions have been changed
several times since the introduction of the program in 1979. To be entitled to VERP on
1 March 1992, at which time the changes in the VERP program came into force, the
worker must:
3. An example is Baker and Benjamin (1999), who apply the difference-in-differences approach to examine
the introduction of early retirement provisions in Canada’s two public pension plans.
4. The rules for entitlement to VERP benefits are described in Section 2 below.