Among developed economies, increasing life expectancy and reduced birth rates in the second half of the twentieth century have led to aging populations. In addition, empirical findings suggest an increase in anticipated retirement and consequently a reduction in the participation of elderly people at work (see, for example, Costa, 1998). These two trends have progressively unbalanced the ratio between retired and working people, compromising the financial sustainability of the social security system (see Galasso and Profeta, 2004).
This is primarily why policy-makers are typically deciding to increase the retirement age. Like many industrialized countries, Italy has experienced many pension reforms since the early 1990s. In Italy the first change in regulation was put in place in 1992, with the so-called Amato’s law, which modified the eligibility criteria for the old age pension. Three years later, in 1995, a new regulation was introduced under the name of Dini’s law. After a short period, the Italian government approved a new version (Prodi’s law) in 1997. Finally, Maroni’s law was implemented in 2004, which changed all of the eligibility criteria for the seniority pension.
This paper focuses on the changes made during the 1990s to the ‘seniority pension’ scheme. In particular, Dini’s law introduced two alternative rules regulating pension eligibility, stating that the pension can be drawn either (1) at the age of 57, after 35 years of contributions, or (2) after 40 years of contributions regardless of age. As with Amato’s law, the introduction of Dini’s law was gradual, with age and contribution criteria increasing from 1996 to 2006, and with further evolution of the contribution criteria from 1996 to 2008. Prodi’s law, in 1997, anticipated the changes of age and contribution criteria set by Dini’s law. Table 1 summarizes the changes in the eligibility criteria provided by these laws.
Table 1 Seniority pension: evolution of eligibility rules
The progressive tightening of the pension’s requirements is associated with a decreasing retirement probability, which is evident comparing different cohorts given a certain age. However, neither law causes a drastic change in the retirement likelihood, and there is no expectation of a discontinuity at the threshold point, rather a gradual decrease provided by the progression of the law.
The individuals most likely to be affected by the reforms are those aged 52 so that we compare individuals at the same age but in different cohort. Table 1 summarizes the issue: before the reforms an individual was eligible to draw a pension after 35 years of contributions (having started work at 17, for example), but for the next 2 years would need to have 36 years’ worth of contributions, and from 1999 would need 37 years’ worth (which in the case of someone aged 52 would mean that they started work at 15, i.e. the minimum working age, and had no interruptions in their working career). Furthermore, workers cannot retire at any of the year because Dini’s law also introduced the so-called retirement windows, fixed periods in which it is possible to stop working. For this reason most retirements are on 31 December and the first day of retirement is 1 January of the following year. So one would expect the first reduction in the number of retired workers to be in 1997. Due to differences in career paths, this study concentrates on male workers because females usually register more labor market interruptions to their working careers than men, and are automatically less affected by pension reforms.