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

  • Herbertsson, Tryggvi Thor

    ()

    (University of Iceland)

  • Orszag, Mike

    ()

    (Towers Watson)

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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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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  1. 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.
  2. 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, November.
  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. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
  5. J. Michael Orszag & Dennis J. Snower, 1996. "A Macro Theory of Employment Vouchers," Archive Discussion Papers 9605, Birkbeck, Department of Economics, Mathematics & Statistics.
  6. 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.
  7. Gary S. Fields & Olivia S. Mitchell, 1984. "The Effects of Social Security Reforms on Retirement Ages and RetirementIncomes," NBER Working Papers 1348, National Bureau of Economic Research, Inc.
  8. Orszag, J. Michael & Snower, Dennis J., 2003. "Designing employment subsidies," Labour Economics, Elsevier, vol. 10(5), pages 557-572, October.
  9. 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.
  10. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
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