Incentive effects of social security on labor force participation: Evidence in Germany and across Europe

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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.

Original languageEnglish
Pages (from-to)25-49
Number of pages25
JournalJournal of Public Economics
Volume78
Issue number1-2
DOIs
StatePublished - Oct 2000
Externally publishedYes

Keywords

  • Incentive
  • Labor force participation
  • Pensions
  • Social security

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