The link between pensions and retirement timing: Lessons from California teachers

I exploit a major, unanticipated reform of the California teachers' pension to provide quasi-experimental evidence on the link between pension features and retirement timing. Using two large administrative data sets, I conduct a reduced-form analysis that leverages the nonlinearities in the return to work generated by the pension features and the reform-induced shifts of these nonlinearities for identification. The implied estimates of the elasticity of lifetime labor supply with respect to the return to work are centered around 0.04 in the medium-run and are less than 0.1 in the long-run.

► The California teachers’ pension generates kinks in the financial return to work.
► Reform-induced shifts of the kink locations are leveraged in the analysis.
► There is retirement bunching at ages corresponding to the pre- and post-reform kinks.
► Administrative data are used to estimate the lifetime labor supply elasticity.
► Retirement is delayed by 2-4 months when the return to work increases by 10%.