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Social Security and Retirement in Germany

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  • Axel Borsch-Supan
  • Reinhold Schnabel

Abstract

This paper describes the German public old age social security program (,Gesetzliche Rentenversicherung') and its incentive effects on retirement decisions. The paper presents the key features of the system and expresses retirement incentives in the form of accrual rates of social security wealth and implicit tax rates on earnings. It summarizes labor market behavior of older persons in Germany during the last 35 years and surveys the empirical literature on the effects of the social security system on retirement in Germany. The paper shows that even after the 1992 reform the German system is actuarially unfair. This generates a substantial redistribution from late to early retirees and creates incentives to early retirement. Indeed, average retirement age is very low in West Germany (about age 59) and even lower in East Germany. This tendency towards early retirement is particularly hurting in times of population aging when the German social security contribution rate is expected to increase dramatically and will substantially exceed the rates in other industrialized countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6153.

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Date of creation: Aug 1997
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Publication status: published as Borsch-Supan, Axel and Reinhold Schnabel. "Social Security And Declining Labor-Force Participation In Germany," American Economic Review, Vol. 88, no. 2 (May 1998): 173-178
Handle: RePEc:nbr:nberwo:6153

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  1. repec:nys:sunysb:321 is not listed on IDEAS
  2. Laurence J. Kotlikoff & David A. Wise, 1987. "The Incentive Effects of Private Pension Plans," NBER Chapters, in: Issues in Pension Economics, pages 283-340 National Bureau of Economic Research, Inc.
  3. Glenn T. Sueyoshi, 1989. "Social Security and the Determinants of Full and Partial Retirement: A Competing Risks Analysis," NBER Working Papers 3113, National Bureau of Economic Research, Inc.
  4. Börsch-Supan, Axel, 1997. "Germany: A social security system on the verge of collaps," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 97-23, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Robin L. Lumsdaine & James H. Stock & David A. Wise, 1992. "Three Models of Retirement: Computational Complexity versus Predictive Validity," NBER Chapters, in: Topics in the Economics of Aging, pages 21-60 National Bureau of Economic Research, Inc.
  6. James H. Stock & David A. Wise, 1988. "The Pension Inducement to Retire: An Option Value Analysis," NBER Working Papers 2660, National Bureau of Economic Research, Inc.
  7. Riphahn, Regina T. & Schmidt, Peter, 1995. "Determinanten des Rentenzugangs: Lockt der Ruhestand oder drängt der Arbeitsmarkt?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 95-10, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, July.
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