Effects of Changes in Pensions on the Age of First Benefit Receipt: Regression Discontinuity Evidence from Repatriated Ethnic Germans

To estimate the effects of large cuts in pensions on the age of first benefit receipt, we exploit two natural experiments in which such cuts affect a group of repatriated ethnic German workers. The pensions were cut by about 12%, yet, according to our regression discontinuity estimates based on administrative pension data, there was no significant delay in the age of first pension receipt. Based on additional data sources, we find (i) that almost all pension recipients of our study population had left the labor force and (ii) that repatriated ethnic Germans hold similar jobs and exhibit similar retirement behavior as low-skilled Germans. The results are consistent with low-skilled workers in Germany being frozen in a corner-solution equilibrium in which the optimal choice is to retire as early as possible.