Rising Pension Age in Italy: Employment Response and Program Substitution

This paper investigates the impact of the 1992 Italian Pension Reform tightening minimum pension age for men on several labour market outcomes. In particular, both its intended (on retirement and employment) and unintended effects (on other components of social welfare) are considered. The empirical analysis is based on a large administrative database and it exploits the quasi-natural experiment offered by the gradual phase in of the reform. Results show that the reduced pension benefit claiming induced by the reform did not lead to a one-to-one increase in employment, inasmuch we find evidence of social support substitution. Workers facing stricter eligibility conditions demanded more disability and unemployment benefits and yet, the probability of inactivity increased the most. Sensitivity checks show that the results are very robust and that they are not driven by an extension of the receipt time of people already receiving alternative welfare benefits before the reform. The size of the effects vary across socioeconomic groups and individuals with poorer health, in manual occupations and with lower earnings resulted the most constrained by the new pension rules, experiencing the highest increase in employment and substitution between retirement and other social. security programs.