Income Security Programs and Retirement in Sweden

Abstract

This chapter estimates how economic incentives inherent in the income security system and compulsory old age pensions affect retirement behavior. The results support the view that economic incentives matter for retirement behavior in the Swedish labor market. The chapter is organized as follows. Section 10.2 describes the institutions that affect the economic incentives for retirement decisions—such as rules for different pension schemes, labor market insurance, housing allowances, and income taxes—during the period 1983–1997. It also provides a descriptive analysis of the frequency of different pathways to permanent exit from the labor market. Section 10.3 reviews previous research on retirement behavior in Sweden. Section 10.4 presents the data set and shows how the different measures of economic incentives are obtained in Section 10.5. The empirical models and estimation results are outlined in Section 10.6. Section 10.7 reports results from simulations of the estimated models. Section 10.8 concludes.

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