Does Raising the Early Retirement Age Increase Reemployment of Older Unemployed Workers?

This study examines an increase in the early retirement age from 60 to 63 for the group of older unemployed workers in Germany. The reform extends the distance to retirement for affected individuals by up to three years. We use this source of exogenous variation to estimate differences-in-differences of the reemployment hazard, thereby accounting for time-invariant unobserved heterogeneity and the possibility of competing risks. Previous to the estimation, we account for selection on observables by implementing matching based on entropy balancing. Our results indicate that - all other things equal - the sub-hazard of reemployment increases by 3.6% for each month by which the early retirement age is raised. The effect is large in absolute and relative terms and implies that unemployment as a pathway into early retirement is less prevalent. Thus, raising the distance to retirement substantially reduces public costs from non-employment.