Cash Transfers and Guaranteed Minimum Income Programs:
Research, Evaluation, and Policy
Prague, Czech Republic
September 9-10, 2024
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“Securing the Future: The Impact of the Finnish Guarantee Pension on Labor Supply and Health”
Ohto Kanninen and Ozan Yanar, University of Helsinki
This paper studies the causal impact of additional pension income for low-income retirees on labor supply and health outcomes, including mortality. In March 2011, a guarantee pension was implemented in Finland, ensuring a minimum level of pension income for low-income pensioners. This policy aimed to alleviate poverty among elderly citizens and provide them with financial security in their retirement years.
Our empirical analysis utilizes comprehensive nationwide Finnish register data, which includes detailed information on individuals’ employment status, pension income, and health outcomes. For identification, we employ the differences-in-differences method. This approach involves comparing the changes in retirement rates for those eligible for the guarantee pension with a control group that was not eligible due to having a higher income level. This method allows us to isolate the effect of the guarantee pension from other factors that might influence retirement decisions.
Our results show that the introduction of the Finnish guarantee pension significantly increased retirement rates among individuals on the verge of old-age retirement. Specifically, the retirement rate for eligible individuals increased by approximately three percentage points, which translates to a seven percent rise. The impact was even more pronounced for individuals who were not employed at the time of the reform. For this group, the retirement rate increased by seven percentage points, or sixteen percent. In contrast, we do not observe a similar effect for those who were employed. This indicates that while the guarantee pension provided a strong financial incentive for non-employed individuals to retire, employed individuals did not alter their retirement plans to the same extent.
Moreover, we examine the health outcomes associated with the introduction of the guarantee pension. While our primary focus is on labor supply decisions, we also explore whether additional pension income has any measurable effects on health indicators, including mortality rates and the use of prescription medicines. This analysis aims to deepen our understanding of whether financial security in retirement can lead to improved health and longevity among low-income retirees.
In conclusion, our findings show that the guarantee pension reform had a significant impact on retirement decisions in Finland, particularly among non-employed individuals nearing retirement age. These results highlight the importance of pension policies in shaping labor supply decisions and underscore the potential health benefits of ensuring adequate retirement income.