Train More, Work Longer The Effects of Pension Reforms and Training Incentives on the Retirement and Training Decisions of Older Workers

We exploit the overlapping exogenous variation in b oth mandatory minimum early retirement age and government regional training subsidies in Italy dur ing the 1990s and early 2000s to estimate the causa l effect of training on the decision to retire and the causa l impact of the distance from minimum retirement age ‐ the horizon effect - on training. We find that both tra ining and pension policies have contributed to redu ce retirement and to increase training in our sample o f Italian males aged 45 to 56. The size of the esti mated effects is rather different, however. On the one ha nd, we find that an exogenous one - year increase i n mandated minimum early retirement age has reduced the probability of retirement and increased training by close to 9 and 12 percent respectively. On the othe r hand, we show that one additional real euro per h ead spent in training incentives has reduced retirement and increased training by 0.3 and 2 percent. Ceter is paribus, it would take an additional 6 euro per hea d per year (close to 240 million euro) for training policies to be as effective as retirement policies in encouragi ng training among older workers. We provide evidence that higher training substantially reduces the probabili ty of retirement in our sample, and that a longer w orking horizon significantly increases the individuals sto ck of training. We investigate reasons why training is so effective in reducing retirement. Our tentative est imates suggest that additional training reduces the risk of unemployment and increase earnings.