Effects of Future Pension Benefits on Pre-Retirement Labor Supply: Evidence from Chile

Abstract

In this paper, I estimate the effect of future pension benefits on pre-retirement labor supply for a representative sample of Chilean workers. Using non-linear patterns in pension benefit formulas and a reform that changed non-contributory pensions, I estimate the effect of pension accrual and expected pension wealth on labor force and contributory-sector participation, labor earnings, and hours worked. I find that the effect is related to the impact of pension accrual on the probability to contribute to the pension system. The effect is heterogeneous, and is concentrated among middle-age workers, low-skilled workers, workers with no savings, and workers with higher financial literacy.

Keywords: Labor supply, pension benefits, financial literacy

JEL Classification: J26, J32, H21