Essays on Labor Economics, Household Savings, and Pension Reforms

Essay I: Increased longevity has prompted many countries to reform their pension systems by strengthening the link between contributions and future benefits. This paper examines a Swedish pension reform that reduced average public pension wealth by 6.2 percent for individuals approaching retirement and evaluates its impact on private pension saving and labor supply decisions. I find no evidence that the reform affected private pension saving at the aggregate level, either on the extensive or the intensive margin. However, subgroup analyses reveal a decline in saving among higher-income individuals with long pension contribution histories. Labor supply responses are stronger, with individuals extending their working lives in response to the reform. I estimate a 2 percent increase in extensive margin labor supply, and evidence also points to positive responses along the intensive margin. Essay II: This paper studies the effect of a pension reform on private saving behavior among young individuals early in their careers. The reform shifted the occupational pension system from a defined benefit to a defined contribution structure, resulting in an average reduction of 21 percent in expected occupational pension wealth using an assumed rate of return. However, the effect is highly sensitive to the return assumption. When applying a return based on actual investment performance, the reform instead leads to an average increase in pension wealth. Using a difference-in-differences approach, I find modest effects on private pension saving, where participation increases slightly, but this is only marginally statistically significant. Subgroup analyses indicate a positive saving response among individuals with low income and high education. Overall, the reform did not lead to broad changes in saving behavior. Essay III (with Spencer Bastani, Jonas Kolsrud and Daniel Waldenström): Using Swedish military enlistment and linked administrative tax registers, we compare the returns to cognitive ability in the labor and capital markets. A one-standard-deviation increase in ability raises capital income almost twice as much as labor income. This capital advantage survives controls for education, occupation, parental background, and inheritance. A decomposition shows that the gap is driven equally by the superior risk-adjusted performance of high-ability individuals and their higher savings rates. The evidence highlights cognitive ability as a critical determinant of capital market success and suggests that ability-based return differentials are an underappreciated mechanism behind rising wealth inequality.