Pension and Entrepreneurship: Evidence from Sweden’s Transition from Defined Benefit to Defined Contribution
By Ai Jun Hou, Di Cui, Mingfa Ding, Yikai Han & Xiaoyang Li
Sweden’s 1999 pension reform-which replaced a defined-benefit (DB) regime with a notional defined-contribution (DC) scheme-changed incentives in ways that affect employees’ career choice over the life cycle. We use Swedish administrative data and a difference-indifferences approach to study the impact of this reform on entrepreneurship. We find that entrepreneurial entry increases more after the reform among cohorts with greater exposure to the new DC pension system. The results are robust to discrete cohort comparisons, event-study validations, alternative sample definitions, and placebo tests. We further show that the reform’s impact is stronger for individuals facing greater career risk and labor-market constraints, consistent with the reform reducing long-term downside risk associated with entrepreneurship. Finally, we find that greater exposure to the DC system is associated with higher pension income at retirement, particularly for individuals with entrepreneurial experience. Our findings highlight how pension institutions can shape occupational choice by influencing longrun risk-return trade-offs over the life cycle.
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