Early Retirement: Reasons and Consequences

Abstract

One of the most dramatic demographic trends in the post-war period has been the withdrawal from the labour force of older male workers. In the early 1960s, the participation rate for people aged 60 and over was above 70% in each country and above 80% in several of them. By the mid-1990s, the rate had fallen to below 20% in Belgium, Italy, France and the Netherlands, to about 35% in Germany and up to 40% in Spain. But are the reasons for this decline in participation rates attributable to worker’s preference for leisure, to legislation, to employer’s choice or to social security generosity? This paper looks at the extent to which early retirement plays a role in explaining this trend and focuses on the monetary incentives built into social security systems (or private pensions schemes) which encourage early exits. One important message, if not the main message of our analysis, is that even the basic stylised facts are hard to describe and quantify because of lack of data. In fact, in this framework, it is relevant to consider how different workers take retirement decisions, given the institutional setting and given all other individual characteristics (age, schooling experience, family composition, etc.). The ideal data set would be a micro-level survey which should contain all these characteristics and could be used for policy experiments. Even more valuable would be the possibility of having full comparability of this “ideal sample” across different countries, hence learning about retirement choices from differences in the institutional environment.