Labour Supply Effects of an Early Retirement Programme

In 1988, an early retirement program (AFP) was introduced in Norway for the 66-years-old. Since then, AFP has gradually been extended and by now it covers workers aged 62-66. In this paper we employ a multinominal logit model to study the transition between states in the labour market. The model is estimated on a large panel data set covering the period 1988-2 to 1999-4. The estimated model tracks the development quite well, as also outside sample predictions do. The model is used to assess the future labour market impact of abolishing AFP. We find that by abolishing AFP may increase the labour force participation among older men (55-67) in 2005 from 72 percent in the baseline projection to 83 percent. For females the corresponding increase is from 62 to 67 percent.