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Incentive Effects of Social Security on Labor Force Participation: Evidence in Germany and Across Europe

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  • Axel Borsch-Supan
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    Abstract

    All across Europe, old age labor force participation has declined dramatically during the last decades. This secular trend coincides with population aging. The European social security systems therefore face a double threat: retirees receive pensions for a longer time while there are less workers per retiree to shoulder the financial burden of the pension systems. This paper shows that a significant part of this problem is homemade: most European pension systems provide strong incentives to retire early. The correlation between the force of these incentives with old age labor force participation is strongly negative. The paper provides qualitative and econometric evidence for the strength of the incentive effects on old age labor supply across Europe and for the German public pension program.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6780.

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    Date of creation: Nov 1998
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    Publication status: published as American Economic Review (May 1999).
    Handle: RePEc:nbr:nberwo:6780

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    1. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc.
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    4. Borsch-Supan, Axel & Hajivassiliou, Vassilis A., 1993. "Smooth unbiased multivariate probability simulators for maximum likelihood estimation of limited dependent variable models," Journal of Econometrics, Elsevier, vol. 58(3), pages 347-368, August.
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    8. Schnabel, Reinhold, 1997. "Rates of Return of the German Pay-As-You-Go Pension System," Sonderforschungsbereich 504 Publications 98-56, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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    16. Sikandar Siddiqui, 1997. "The pension incentive to retire: Empirical evidence for West Germany," Journal of Population Economics, Springer, vol. 10(4), pages 463-486.
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    19. Didier Blanchet & Louis-Paul Pele, 1997. "Social Security and Retirement in France," NBER Working Papers 6214, National Bureau of Economic Research, Inc.
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    21. Takashi Oshio & Naohiro Yashiro, 1997. "Social Security and Retirement in Japan," NBER Working Papers 6156, National Bureau of Economic Research, Inc.
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    23. Costas Meghir & Edward Whitehouse, 1993. "Labour market transitions and retirement of men in the UK," IFS Working Papers W93/12, Institute for Fiscal Studies.
    24. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
    25. Riphahn, Regina T. & Schmidt, Peter, 1995. "Determinanten des Rentenzugangs: Lockt der Ruhestand oder drängt der Arbeitsmarkt?," ZEW Discussion Papers 95-10, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    Cited by:
    1. Arnds, Pascal & Bonin, Holger, 2002. "Frühverrentung in Deutschland: Ökonomische Anreize und institutionelle Strukturen," IZA Discussion Papers 666, Institute for the Study of Labor (IZA).
    2. Vendrik Maarten & Cörvers Frank, 2009. "Male and female labour force participation: the role of dynamic adjustments to changes in labour demand, government policies and autonomous trends," Research Memorandum 036, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    3. Axel Börsch-Supan, 2002. "Nach der Reform ist vor der Reform:Weitere Schritte für eine nachhaltige Reform der Altersvorsorge in Deutschland," MEA discussion paper series 02015, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    4. Darby, Julia & Hart, Robert A. & Vecchi, Michela, 2001. "Labour force participation and the business cycle: a comparative analysis of France, Japan, Sweden and the United States," Japan and the World Economy, Elsevier, vol. 13(2), pages 113-133, April.
    5. Axel Börsch-Supan, 2002. "A Blue Print For Germany’s Pension Reform," MEA discussion paper series 02002, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    6. Estelle James & Alejandra Cox Edwards, 2005. "Do Individual Accounts Postpone Retirement: Evidence from Chile," Working Papers wp098, University of Michigan, Michigan Retirement Research Center.
    7. Axel Börsch-Supan, 2002. "Eine Blaupause für eine nachhaltige Rentenreform in Deutschland," MEA discussion paper series 02001, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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