samlet årgang - Økonomisk Institut - Københavns Universitet

THE EFFECT OF THE ’92-REFORM OF THE VERP ON RETIREMENT AGE 175
because while the number of individuals in the selected sample who are entitled to
VERP is relatively large, the number of individuals included in PEP is too small to impose
further restrictions on this group. Another potential control group might have
consisted of people entitled to neither VERP nor PEP. However, this group is too heterogeneous
to be suitable for this purpose. The point of restricting VERP2 to public
employees with long tenures is to make the sample group more comparable with respect
to education, income, previous unemployment and sector – all factors that affect
retirement behaviour. The larger comparability with regards previous unemployment
and sector is obtained through the selection criteria. These criteria have also resulted
in larger comparability as intended, although a relatively large difference still remains
with respect to education and income in particular (see Table A.1 in the Appendix).
Conversely, however, VERP2 differs more from PEP with respect to gender than
VERP1. Thus, VERP2 is dominated by women, while a minor predominance of men
is found in PEP and VERP1. Gender has also a pronounced effect on retirement behaviour
and larger comparability would be obtained if separate analyses for men and
women were carried out and if the sample group was restricted further with respect to
education and/or income. However, small sample size makes separate analyses impossible.
Instead, differences with respect to gender, education and income are at least
partly controlled for since they are included as explanatory variables in the analysis.
The sample is restricted to individuals who were wage earners or temporarily out of
employment due to unemployment or leave at age 59 (individuals, who were outside
the labour force at age 59 are excluded because they were not entitled to either VERP
or PEP at age 60). To make the individuals in the two VERP groups as comparable as
possible to the group entitled to PEP, which consists exclusively of wage earners, selfemployed
and assisting spouses are also excluded. Labour market status at age 59 and
the retirement year are determined from annual information about the primary labour
market status at the end of November.
5. Empirical models
The focus is on the average effect of the change in the program on people with
access to VERP rather than only on people, who chose to participate in the program.
To examine the effect of the change, two cross-section samples of 60-66-year-olds
entitled to VERP before and after 1992 are compared to the control group on the basis
of two cross-section samples of 60-66-year-olds eligible for PEP.
A difference-in-differences framework is applied. The legitimacy of the differencein-differences
approach is grounded on three assumptions: The change in the VERP
policy provided exogenous variation in the outcome of retirees; there was no program