ISSP10: Retirement Decisions in Germany: Micro-Modelling | Munich Center for the Economics of Aging - MEA


Social Policy and Old Age Provision

ISSP10: Retirement Decisions in Germany: Micro-Modelling

The objective of the tenth phase of the International Social Security Project (ISSP) is to conduct an elaborate multivariate analysis of the effect of public pension policies on retirement and labor force participation choices later in life. We use survey data from the German Socio-Economic Panel (GSOEP). GSOEP was started in 1984 and we use data from 32 consecutive years. This is particularly convenient for the project’s analysis as this time span covers the striking reversal of labor force participation since around 2000. Furthermore, several pension reforms were implemented during these years, which provide variation in pension incentives necessary for the identification of our retirement model.

We use the micro data and the exogenous policy changes to draw causal inference on the effect of public pension rules on employment choices at older ages. We construct, for each individual, time series of the implicit tax. These incentive variables, other macro variables and further determinants on the individual level then serve as explanatory variables in an econometric analysis. We calculate predicted retirement probabilities for each sample person and how they have changed from 1985 to 2015. Subsequently, we compute counterfactual retirement probabilities, i.e., how retirement probabilities would have changed if no reforms had taken place after 1985. The difference between these counterfactual retirement probabilities and the predicted baseline probabilities can be interpreted as the causal effect of the pension reforms that took place between 1985 and 2015. Our main finding is that for men in couple households the predicted and counterfactual retirement probabilities begin to diverge after about the year 2000. This coincides with the introduction of actuarial adjustments for early retirement as legislated in the 1992 reform.

The project will be published within the NBER Book Series on “International Social Security”, forthcoming from University of Chicago Press.