Teachers’ retirement decision

A study presented by Dr Denis Fougère

The study proposes a structural evaluation of the 2003 French pension reform on retirement decisions of high-school teachers.

The study proposes a structural evaluation of the 2003 French pension reform on retirement decisions of high-school teachers.

Due to the complexity of the reform which has progressively modified both the number of quarters required for full pension and the pension rate, we cannot use a reduced-form evaluation method, like regression discontinuity or the difference-in-differences method. Instead we estimate an option value model à la Stock and Wise (Econometrica, 1990) using a sample of more than 12,400 high-school teachers. Structural estimates suggest that teachers are slightly risk averse, that their quarterly discount factor is close to unity, and that their preference for leisure is similar to the one found by Stock and Wise (1990). Simulations based on estimated parameters indicate that teachers respond significantly to financial bonuses offered when postponing retirement. A cost-benefit analysis shows that the average retirement age increases up to 61 years old as the reform is progressively implemented. Furthermore, this cost-benefit analysis implies that the reform applied to high-school teachers born between 1940 and 1947 should reduce by 12% the corresponding total public spendings in 2020.

Denis Fougère is Co-Director of the LIEPP "Education Policies" Research Group, first-class Research Director at the CNRS (UMR GRECSTA), and a member of the CREST Laboratory of Microeconomics since 1993. Specialised in microeconomics and microeconometrics, Denis Fougère is particularly interested in labor economics and education, but also in methods of evaluation. Currently, he works on the determinants of academic outcomes in primary and secondary education, on the evaluation of training systems and pension reforms, on the effects of minimum wage and international trade on wage bargaining and employment, and on the effects of public support for business creation.