Prolonging working life and its impact on work disability applications across socioeconomic groups

While increasing the retirement age keeps the pension system sustainable, older workers with health problems may find it challenging to prolong their working life and involuntarily exit the labour market via disability benefits.

We examine the impact of abolishing early retirement and increasing the normal retirement age on disability applications in the Netherlands using a regression discontinuity approach. We use unique registry data on disability assessments linked to employers’ payroll administration to measure workers’ disability application rates.

We find that both the abolishment of early retirement and a three to four months increase in the normal retirement doubled the disability application rate for individuals aged 60+. Lower-income workers experienced the most significant increase in the disability application rate.

Heterogeneity in effects across sectors suggests that a large share of lower-income workers in demanding occupations already moved out of the labour force a few years before reaching the normal retirement age.