We exploit three natural experiments of large cuts in pensions affecting repatriated ethnic Germans, a group of mostly low-skilled workers, to estimate their effects on labor force participation. In two of these experiments, the pension rate was cut by between 8 and 16 percent, but regression discontinuity estimates show there was no significant delay in retirement. In a third experiment, workers were given an incentive to retire earlier in order to avoid a pension cut, but we find no significant effect for retiring earlier. Taken together, the results are consistent with low-skilled workers in Germany being stuck at a corner solution equilibrium, where the optimal choice is to retire as early as possible. Hence older low-skilled workers face little incentives to work in European labor market/social security institutions as exemplified by the German case. |
