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The Early Retirement Burden: Assessing the Costs of the Continued Prevalence of Early Retirement in OECD Countries

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Author Info

  • Herbertsson, Tryggvi Thor

    ()
    (University of Iceland)

  • Orszag, Mike

    ()
    (Towers Watson)

Abstract

Despite substantial increases in longevity, the age of retirement in the industrialized countries has steadily fallen throughout most of the 20th century. In France, for instance, the employment-population ratio of 55 -64 year-old males fell from 74% in 1970 to 38.5% in 2000. In most other OECD countries, labor force participation rates for those 65 and above have fallen significantly. The economic cost of low labor market participation, in terms of lost output, benefit payments, and lower tax base is substantial. However, part of the cost of low labor market participation is cyclical or structural and hence separate from the costs of early retirement. This paper develops a simple framework to assess the specific costs of early retirement and applies it using data from the OECD countries. More significantly, we find that the costs associated with early retirement are projected to rise considerably in the next ten years from 7.6% of output in 2003 to 9.1% of output in 2010. This projected rise in the costs of early retirement over the course of the rest of the decade is slightly larger than the percentage point rise in the costs of early retirement over the twenty year period from 1982 to 2003. The projected rise in costs over the course of the next decade is largely due to population ageing, whereas the rise in costs over the past twenty years was primarily due to lower labor force participation of older workers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 816.

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Length: 23 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:iza:izadps:dp816

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Keywords: early retirement; labor supply/demand; foregone output;

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References

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  1. Snower, Dennis J., 1994. "Converting Unemployment Benefits into Employment Subsidies," CEPR Discussion Papers 930, C.E.P.R. Discussion Papers.
  2. Orszag, Mike & Snower, Dennis J., 1996. "A Macro Theory of Employment Vouchers," CEPR Discussion Papers 1367, C.E.P.R. Discussion Papers.
  3. Kathryn Anderson & Richard Burkhauser & George Slotsve, 1992. "A Two Decade Comparison of Work After Retirement in the United States*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 17(1), pages 26-39, January.
  4. Orszag, J. Michael & Snower, Dennis J., 2003. "Designing employment subsidies," Labour Economics, Elsevier, vol. 10(5), pages 557-572, October.
  5. David M. Gray, 2002. "Early retirement programs and wage restraint: Empirical evidence from France," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(3), pages 512-532, April.
  6. Joseph F. Quinn & Richard V. Burkhauser & Daniel A. Myers, 1990. "Passing the Torch: The Influence of Economic Incentives on Work and Retirement," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pt, December.
  7. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
  8. Olivia S. Mitchell & Rebecca A. Luzadis, 1988. "Changes in pension incentives through time," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 42(1), pages 100-108, October.
  9. Fields, Gary S. & Mitchell, Olivia S., 1984. "The effects of social security reforms on retirement ages and retirement incomes," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 143-159, November.
  10. Meghir, Costas & Whitehouse, Edward, 1996. "The Evolution of Wages in the United Kingdom: Evidence from Micro Data," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 1-25, January.
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Citations

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Cited by:
  1. Van Bui & Michael Stolpe, 2010. "The impact of new drug launches on the loss of labor from disease and injury: evidence from German panel data," International Journal of Health Care Finance and Economics, Springer, vol. 10(4), pages 315-346, December.
  2. Bodor, Andras & Robalino, David & Rutkowski, Michal, 2008. "How Mandatory Pensions Affect Labor Supply Decisions and Human Capital Accumulation? Options to Bridge the Gap between Economic Theory and Policy Analysis," MPRA Paper 12046, University Library of Munich, Germany.
  3. Gerhard Glomm & Juergen Jung & Chung Tran, 2006. "Macroeconomic Implications of Early Retirement in the Public Sector: The Case of Brazil," Caepr Working Papers 2006-008, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  4. Julian Diaz Saavedra, 2013. "Age-dependent Taxation, Retirement Behavior, and Work Hours Over the Life Cycle," ThE Papers 13/09, Department of Economic Theory and Economic History of the University of Granada..
  5. Kemmerling, Achim, 2007. "The end of work or work without end? The role of voters' beliefs in shaping policies of early exit," Discussion Papers, Research Unit: Labor Market Policy and Employment SP I 2007-108, Social Science Research Center Berlin (WZB).
  6. Nick Adnett & Stephen Hardy, 2007. "The peculiar case of age discrimination: Americanising the European social model?," European Journal of Law and Economics, Springer, vol. 23(1), pages 29-41, February.
  7. Gisela Hostenkamp & Michael Stolpe, 2008. "The Social Costs of Health-related Early Retirement in Germany: Evidence from the German Socio-economic Panel," Kiel Working Papers 1415, Kiel Institute for the World Economy.
  8. Koulovatianos, Christos & Schröder, Carsten & Schmidt, Ulrich, 2005. "Non-market time and household well-being," Discussion Papers 2005/11, Free University Berlin, School of Business & Economics.
  9. Rossana Merola & Douglas Sutherland, 2012. "Fiscal Consolidation: Part 3. Long-Run Projections and Fiscal Gap Calculations," OECD Economics Department Working Papers 934, OECD Publishing.

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