Early retirement as a labor force policy: an international overview In grappling with the problems posed by high and persistent unemployment which continue to plague the countries of Western Europe and North America, an array of labor market policies have been implemented to lower or at least contain the ranks of the unemployed. Such policies aim at influencing the supply of or the demand for labor.
Stimulating demand traditionally has been the main policy tool against joblessness. In recent years, however, there has been a noticeable trend away from demand expansion out of fear of rekindling the inflationary spiral. Instead, there has been a growing reliance on supply-oriented measures, such as restrictions on labor migration from abroad, repatriation of foreign guest workers, reduction of hours of work, work sharing arrangements, and increases in the legal working age and the number of years of mandatory schooling. The most frequently employed among such methods, however, have been policies to induce early retirement through various social security schemes.
These early retirement programs, many of which were initially formulated to achieve broad social goals rather than labor market equilibrium, have taken several forms: (1) prerecession schemes, originally introduced within the framework of social policies to benefit older workers, which have been expanded or more aggressively pursued; (2) other types of schemes, such as disability programs, into which economic and additional health criteria have been introduced; and (3) specific recession-oriented measures to promote premature retirement which were established in response to chronic high rates of unemployment of the 1970's and early 1980's. In practice, however, it is often difficult to distinguish among these three categories.
Only incipient in the early 1970's, the trend toward broadening eligibility for retirement and disability programs as a means of alleviating unemployment gained momentum as unemployment remained resistent to other labor market policies. This gradual blurring of the boundaries between the retirement, disability compensation, and employment objectives of the measures has contributed to enormous strains on public and private pension systems, while the extent to which the schemes have alleviated unemployment remains controversial.
Whereas public policy in the United States has been modified in recent years to encourage the postponement of retirement, in Europe, early retirement schemes have tended to be more pervasive. Several factors help to explain these differing approaches to influencing labor market developments. First, the governments of Western Europe have been under considerably more pressure than that of the United States to implement early retirement plans to alleviate high unemployment. This is a consequence of the stagnation in employment expansion in Western Europe as compared to the substantial employment generation that has taken place in the United States. One reflection of this divergence in the pattern of job creation is the unemployment rate. In 1985, the average annual unemployment rate for 13 countries of Western Europe was approximately 9.7 percent. This contrasts sharply with an unemployment rate of 7.0 percent experienced by the United States the same year. A second factor can be attributed to differences in the pace of aging. Normally defined as the population age 60 and over, the aged in Western Europe made up 14.3 percent of the total population in 1950 and 19.2 percent in 1985, while in the United States, the aged represented 12.1 percent and 16.3 percent of the population, respectively. This difference in the extent of aging is expected to continue into the near future. By the year 2000, the aged are projected to be 21.1 percent of the population in Western Europe and 16.0 percent in the United States.
This article presents a brief discussion of early retirement programs in general, followed by an inventory of specific measures implemented on a country-by-country basis. The impact of the schemes on the labor force participation of older workers is then examined. Selected schemes are analyzed in greater detail and provide the basis for conclusions concerning their use in curbing unemployment.
The nature of early-out schemes
Early retirement strategies are widely used to cope with problems such as those posed by labor market rigidities, the introduction of new technologies, restructuring activities resulting in redundancies and overmanning, and job search difficulties among certain population groups. These schemes can be categorized by target group--that is, employed workers, unemployed workers, or disabled …