The Effect of a Longer Working Horizon on Individual and Family Labour Supply
Francesca Carta  1, 2@  
1 : Bank of Italy
2 : Dondena

When search is costly, the returns from a job depend on its expected duration; in pensions systems in which individuals tend to retire as soon as they reach eligibility, a longer distance to retirement may not only affect the labour supply of individuals around the eligibility threshold, but it may also boost the search eort of younger individuals, whose working horizon has increased. This paper estimates the comprehensive labour supply responses to a longer working horizon at the individual level and at the household level. Identication exploits the latest pension reform implemented in Italy in 2012, which signicantly increased the minimum retirement age, heterogeneously across narrowly dened cells. To isolate the effect of a longer working horizon to the one related to postponed eligibility and, thus pension income, we focus on individuals who were not eligible for retirement even under the pre-reform rules. We estimate sizeable positive effects on female participation at all ages (between 45 and 59), but no response of men. Within families, a longer wife's working horizon also raises her husband's participation; the opposite effect does not seem to be in place.


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