Do retirement windfalls create entrepreneurs? Evidence from Türkiye’s 2023 retirement age reform
This paper investigates Türkiye's 2023 retirement reform and finds that while the resulting pension windfall encouraged some retirees to remain in registered wage employment, it failed to generate a measurable increase in new business creation or entrepreneurship.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
For decades, economists have debated a simple question: does having extra money make people want to start their own businesses? The theory suggests that when people are stuck because they cannot borrow cash to buy equipment or hire help, a sudden cash gift—like a lottery win or a large inheritance—should free them to become entrepreneurs. This idea is often used to justify policies that give workers large sums of money when they retire, with the hope that this wealth will spark a wave of new companies and create jobs for others. But there is a second side to this story. When people receive a guaranteed income for the rest of their lives, they might feel less pressure to take the risks required to build a growing company. They might simply choose to keep working in a safe job, or start a tiny, low-risk side business just to cover basic expenses. Understanding which of these paths people actually take is crucial for governments trying to design retirement rules that lead to better work and a stronger economy.
In 2023, Turkey provided a rare, real-world test of this question. A new law allowed about 1.76 million workers, most of whom were in their late forties, to retire immediately and receive a lifetime pension. For those who had been employees, the law also provided a large one-time payment based on how many years they had worked. Crucially, the law did not force these people to stop working; they could keep their jobs or find new ones while collecting their pension. This created a massive group of experienced workers who suddenly had a financial safety net. Researchers used this situation to see if this sudden wealth turned these workers into business owners who would hire other people, or if it simply kept them in their existing roles.
The researchers gathered data from across 70 provinces in Turkey, looking at official records of new business registrations, tax filings, and social security numbers. They compared regions where many workers became eligible for the early retirement to regions where fewer did, allowing them to isolate the effect of the pension windfall. The results were clear and surprising. Despite the influx of cash, the number of new companies did not rise. There was no detectable increase in the formation of new firms, nor was there an increase in the number of businesses that hire employees. The data showed that for every 200 people who retired under this new rule, there was no more than one new company created. The upper limit of what the data could possibly hide was so small that it effectively meant the reform did not generate job-creating entrepreneurship.
Instead of becoming bosses, the majority of these new retirees simply kept working. The study found that for every person who retired, about 0.3 to 0.5 of them continued to work in registered jobs. Many likely stayed with their previous employers, encouraged by a small government subsidy that helped companies rehire them. The only shift in the business landscape was a move toward a specific type of very small, tax-exempt business registration, often used by solo workers like taxi drivers or market vendors. However, this shift was weak and did not survive strict statistical checks. It suggests that if any new businesses were started, they were likely small, solo ventures designed to avoid taxes rather than to grow and hire staff.
The study also tested a common argument used to support early retirement: that it frees up jobs for younger workers. The idea is that when older workers leave, their positions open up for the youth. The researchers looked at public employment records to see if more young people found jobs in areas where many older workers retired. They found no evidence of this happening. The number of young people finding work through public services did not increase in the regions hit hardest by the reform. In fact, the data suggested that because so many retirees stayed in their jobs, very few positions were actually vacated to be filled by younger workers.
Ultimately, the research indicates that a large financial windfall at retirement does not automatically turn workers into job-creating entrepreneurs. While the money was enough to keep many experienced workers in the formal labor market, it did not spark the creation of new companies. The findings suggest that policies relying on retirement wealth to generate new businesses and decent jobs may be misplaced. Without additional support and different incentives, a pension payout is more likely to sustain existing employment than to create new opportunities for growth.
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