The Effect of Old-Age Insurance on Male Retirement:
Evidence from Historical Cross-Country Data

By Richard Johnson
December 2000
RWP 00-09
Research Division
Federal Reserve Bank of Kansas City

Abstract

I examine the effect of Old-Age Insurance systems on the labour supply of older men. Male retirement ages are crucial to the solvency of OAI systems. Historical data on participation rates and OAI rules in thirteen developed countries show rapid falls in participation among men aged 60-4 after pensions were extended to them. I estimate participation elasticities of -0.06 with respect to replacement rates and 0.19 to the net-of-tax wage. It does not appear that endogenous OAI changes bias the regression coefficients. The growth of OAI explains about 11 percent of the reduction in participation of men aged 60-4 since 1920; greater wealth probably explains most of the remainder.

JEL Classification: H55, J14, J21, J26

Key words: Social Security, public pensions, economics of the elderly, labor force and employment, retirement
policies

Richard Johnson is an economist at the Federal Reserve Bank of Kansas City. The author is indebted to Erik
Türk of the Austrian Social Security Administration and David Frame of the New Zealand Treasury for help
with data on their respective countries. Special thanks are due to David Cutler. The author also thanks Larry
Katz, Jonathan Gruber, John McHale, Dora Costa, Ted Miguel, and participants in the Harvard Public Finance seminar and workshop for their advice and suggestions. The views expressed herein are solely those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

Johnson E-mail: richard.johnson@kc.frb.org

Back to top                RWP home