Labor supply effects of increases in non-labor income : A study about older working individuals labor force participation

Abstract: The ageing of the Swedish population entails an increase of public and pension expenditure. A solution to keep the compensation level constant is to make individuals retire later from the labor force. In order to understand what actions need to be implemented, there is a need of more knowledge about the characteristics of individuals who chose to remain in the labor force after the normal age of retirement. This essay investigates how senior workers’ that are above the normal retirement age responds to an increase of non-labor income and how it affects labor supply. The results show that around 66 % of individuals will continue to work to the same extent, around 15 % will choose to reduce hours of work, and near 19 % will chose to retire. Also the results show that a person that will not change anything in hours of work after an increase in non-labor income will most likely be a male that is self-employed, who really likes his job and has a postgraduate degree. One conclusion in this essay is that to only focus on compensation levels in different social insurance systems to increase senior workers’ labor force participation will not be as effective as if also focus would be on social norms and cultural beliefs to increase engagement towards work.