No. B98-04

Social Security, Retirement Incentives, and Retirement Behavior: An International Perspective


This paper summarizes the financial incentives for retirement faced by older workers in the U.S. and around the world, and the correspondence between these financial incentives and the actual retirement decisions that are made. We begin with a review of the trends in labor force participation, in the U.S. and around the world, highlighting the remarkable reduction in the participation of older workers in the labor force. We then document the current patterns of labor force participation by older workers in the U.S. and in these other countries. We then use data from several individual countries to illustrate the relationship between social security provisions and withdrawal from the labor force. We first discuss the relationship between the age of benefits entitlement and retirement patterns across several nations. We then summarize across the full sample of nations the retirement incentives inherent in their different systems. Finally, we compare these incentives to actual patterns of retirement across this sample of nations, finding a striking correlation between countries that tax work heavily at older ages and countries that have little labor supplied at those ages.

Jonathan Gruber

David Wise
Harvard University and NBER