TABLE 3-5Retirement Incentives and Labor Market Behavior

CountryUnused Labor Capacity, Age 55 to 65 (%)aReplacement Rate at ER Age (%)bAccrual in Next Year (%)Implicit Tax on Earnings in Next Year (%)Tax Force, ER Age to 69cHazard Rate at Early Retirement Age (%)d
United Kingdom5548−10.0753.7722
United States37410.2−11.5725

Unused labor capacity is defined as the proportion of persons aged 55 to 65 not in the labor force.


ER = early retirement.


Tax force is the summation of the implied tax rates on continued work beginning with the early retirement age—when a person is first eligible for public pension benefits—and running through age 69.


Hazard rate at early retirement measures the percentage of working individuals who leave the labor market at the early retirement age.


Belgium: The public pension early retirement age is 60, but employees who are laid off are eligible for large benefits at younger ages. Thus the accrual, implicit tax, and tax force measures treat unemployment benefits as early retirement benefits available at age 55.

France: Counting public pension benefits, available at age 60, but not accounting for guaranteed income benefits for those losing their jobs at age 57 or older.

Italy: Public pension benefits for private-sector employees, not counting disability availability.

Netherlands: In addition to public pension benefits, the calculations account for virtually universal employer private pension benefits. The employer plan is assumed to provide for early retirement at age 60. There is no public pension early retirement in the Netherlands, but employer early retirement benefits are commonly available at age 60.

United Kingdom: Based on public pension benefits only, but counting “incapacity” benefits at 60 as early retirement benefits.

Germany: Counting public pension benefits and assuming a person is eligible for “early” disability benefits.

Spain: Based on RGSS (the main public pension program).

Canada: Counting public pension benefits only.

United States: Counting public pension benefits only.

Sweden: Counting public pension benefits only. The hazard rate at the early retirement age is the average of the rates between ages 59 and 61.

Japan: Assuming a “diminishing earnings” profile. The employment option is to work in the primary firm until age 60 and then in a secondary firm, where the worker would be eligible for the 25% wage subsidy if his/her earnings were low enough.

From: 3, Work, Retirement, and Pensions

Cover of Preparing for an Aging World
Preparing for an Aging World: The Case for Cross-National Research.
National Research Council (US) Panel on a Research Agenda and New Data for an Aging World.
Washington (DC): National Academies Press (US); 2001.
Copyright © 2001, National Academy of Sciences.

NCBI Bookshelf. A service of the National Library of Medicine, National Institutes of Health.