NCPA - National Center for Policy Analysis

Older European Workers Drop Out

September 17, 2003

Older workers who retire early increase unused production capacity, reduce the tax base, and increase the burden on pension and fiscal systems. Despite substantial increases in longevity, the age of retirement in the industrialized countries has steadily fallen throughout most of the 20th century. In most of the developed countries in the Organization for Economic Cooperation and Development, labor force participation rates for older workers have fallen significantly.

  • In 13 OECD countries, the average labor force participation of 55-to-64-year-old males fell by more than 12 percentage points between 1979 and 1998.
  • However, there is a wide variation: In France the proportion of 55-to-64 year-old males who worked fell 21 percentage points -- from 74 percent in 1970 to 38.5 percent in 2000, whereas it remained above 85 percent in Iceland.
  • The average economic cost, including lost production and increased benefit payments, is expected to rise in OECD countries from an average of 7.6 percent of output in 2003 to 9.1 percent in 2010, an increase of almost 20 percent.
  • Projected costs range from a high of nearly a fifth of output in Hungary (19.4 percent) to 2.2 percent in Iceland.
  • In the United States, costs of early retirement are expected to rise from 5.7 percent of output in 2000 to 8.1 percent in 2010.

Even if work rates stabilized, costs would continue to rise due to population ageing, whereas the rise in costs over the past 20 years was primarily due to lower labor force participation of older workers.

Source: J. Michael Orszag and Tryggvi Thor Herbertsson, "The Early Retirement Burden: Assessing the Costs of the Continued Prevalence of Early Retirement in OECD Countries," IZA Discussion Paper No. 816, July 2003, Institute for the Study of Labor, Bonn, Germany.


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