In Sweden, employers pay non-wage costs for their workforce in the form of legislated employment tax and collective fees. For parts of the workforce, the collective fees are progressive with respect to the employee’s age and wage. The objective of this paper is to examine how non-wage costs affect voluntary early retirement. To this end we use a large longitudinal employer–employee matched data set with administrative records of the private sector in Sweden.
We exploit the variation in collective fee costs across companies to identify employer incentives to encourage early retirement. The results from the instrumental variable estimator suggest that a 1 percentage point increase in non-wage costs in relation to wage costs increases retirement by 6 percent. Further, given the wage sum and workforce structure, large firms spend more on non-wage compensation than small firms. The share of non-wage costs in relation to the wage sum is also positively linked to net employment growth.