Crowding Out or Mentoring? The Impact of Pension Reform on Entrepreneurship and Economic Attitudes of Young Male Workers

This study examines how an increase in the number of older male workers (aged 65–67) affects the likelihood that younger men (aged 25–55) become entrepreneurs. Several pathways may increase entrepreneurship among younger workers: when older workers remain in their jobs, promotion opportunities for younger workers may be limited, pushing some toward entrepreneurship. In addition, older workers’ experience can benefit younger workers through mentoring, collaboration, and knowledge transfer, improving their readiness to start a business. By contrast, a separate pathway may reduce entrepreneurship: the prolonged presence of older workers may limit younger workers’ access to managerial and professional experience, leaving them less prepared and lowering their probability of self-employment. To identify the direction of this effect, I exploit a 2004 pension reform in Israel that raised the statutory retirement age for men from 65 to 67. Using over 250,000 observations spanning the pre- and post-reform periods, I find that the reform led to an increase in older workers’ employment and a decrease in the likelihood that younger men became entrepreneurs. These effects are more pronounced in sectors with high pre-reform self-employment rates and in sectors that were expanding prior to the reform. Exploring potential mechanisms, I find that younger workers reported increased uncertainty about their economic future following the reform—likely due to the greater presence of older workers in their sectors. However, there is no evidence that the reform affected younger workers’ entrepreneurial attitudes. The results are further supported by placebo tests and analyses of pre-reform trends.