This paper provides a novel test of a key prediction of human capital theory that educational investment decisions depend on the length of the pay-off period. We obtain causal estimates by leveraging a unique reform of the German public pension system that, across a sharp date-of-birth cutoff, increased the early retirement age by three years. Using RDD, DiD, and IV estimation strategies on census and household-panel data, we show that this reform causally increased educational investment in the form of on-the-job training. In contrast, non-job related training before retirement was not affected. We explore heterogeneity and additional outcomes.

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19 March 2021     Paper Number CEPDP1753

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This CEP discussion paper is published under the centre's Education programme.