Gradual retirement, financial incentives, and labour supply of older workers: Evidence from a stated preference analysis

Using data from a stated preferences experiment in the Netherlands, we find that replacing full-time pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total lifetime labour supply, however, decreases by 3.4 months, because the positive effect of delayed retirement on labour supply is cancelled out by a reduction in working hours in the years before full retirement. The impact of gradual retirement schemes is, however, heterogeneous across groups of workers. Workers in bad health who gain access to gradual retirement postpone their retirement by 1.7 months more than workers in good health. This suggests that introduction of gradual retirement alleviates, to a certain extent, the health-related burden that employees in poor health may experience in carrying out their work. Nevertheless, introduction of gradual retirement reduces the total labour supply of both groups of workers. Financial incentives, either in terms of changing pension income or the price of leisure, also affect expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers, as the large majority prefers full retirement.