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03-06-2019

Retirement of the self-employed in the Netherlands

Authors: Amparo Nagore García, Mariacristina Rossi, Arthur van Soest

Published in: Small Business Economics | Issue 1/2021

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Abstract

We investigate retirement decisions of the self-employed in the Netherlands using administrative data focusing on individuals around 65, the state pension age, after which each Dutch resident receives the Old Age State Pension annuity. Since the eligibility age and the magnitude of this state pension are known well in advance, we expect to find no impact on labor supply choices, unless individuals face liquidity constraints. We investigate whether this is the case, by looking at retirement and changes in earnings of the self-employed around age 65. We find a peak in retirement when self-employed reach the state pension age, which is unlikely to be due to liquidity constraints but might be explained by behavioral features.

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See Table 9 in the appendix for the evolution of the SPA in the period under study.

The partner allowance was introduced in 1985 and was discontinued on April 1, 2015 for new AOW pensioners.

They may also receive income from other sources, such as wages as an employee.

We also estimated all models after dropping all observations with these alternative exits, instead of treating them as right-censored observations. The results are very similar and the qualitative conclusions all remain the same.

Entrepreneurs are individuals whose main activity is managing their own business, with employees or not. The legal identity of the business is not separated from the owner’s legal identity (unincorporated business). The legal form may be sole trader, general partnership, or ordinary partnership.

The unmarried group includes never married, divorced, and widowed.

We consider pure entrepreneurs, those with no or a very small occupational pension (estimated yearly annuity lower than 1500 €). This information comes from Pensioenaanspraken.

The selected dataset represents 7% of self-employed (excluding directors).

We use financial wealth net of debt in our benchmark model. Financial wealth contains total household financial assets (savings, bonds and shares), not including pension wealth (public or private). Financial wealth net of debt is equal to total household financial assets minus financial debts (excluding mortgage on the own house).

Negative profits are discarded since they do not say anything about work effort.

A similar pattern is observed across the wealth distribution (not shown), though profits for the richest groups show a more pronounced decrease after reaching the SPA.

Unfortunately, we cannot estimate duration models because we have no information on tenure.

Since time variation in the data is limited we cannot estimate fixed effects models.

SPAb is defined as 1{age = SPA} and SPAb2 defined as 1{age > SPA}.

In the benchmark model, financial wealth is net of debt.

In the benchmark model, financial wealth is net of debt. The model of profits fits better when we include financial wealth in quartiles instead of in quintiles.

For self-employed we cannot control by business wealth, tenure, or number of employees. We include a dummy entrepreneur that takes value 1 if the individual is entrepreneur.

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Title: Retirement of the self-employed in the Netherlands
Authors: Amparo Nagore García
Mariacristina Rossi
Arthur van Soest
Publication date: 03-06-2019
Publisher: Springer US
Published in: Small Business Economics / Issue 1/2021
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-019-00179-0

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