Social Security Reform and Male Labor Force Participation Around The World

Jocelyn E. Finlay Günther Fink

WP#2011-12

Abstract

In this paper we analyze the effect of Social Security regime changes on labor force participation of 50-80-year-old men across and within 13 countries: Argentina, Austria, Brazil, Chile, France, Greece, Malaysia, Mexico, Panama, Portugal, South Africa, Spain, and the United States. Labor force participation of men ages 50-80 has declined dramatically since 1960, despite increases in life expectancy and the compression of morbidity. We use three variables to capture information regarding the Social Security regime: the Social Security tax rate as a fraction of the wage; the replacement rates as a fraction of the wage; and the delay incentive as a fraction of the wage. We find that the tax rate has an inconsistent effect on labor force participation rates across countries, but the replacement rate has a strong negative effect on labor force participation incentives. That is, a higher replacement rate will encourage men to retire. The delay incentive has a small positive effect on labor force participation. Stratifications by regions within France and the United States show that within country variation in the labor market response to national Social Security regimes exists. We also stratify by education attainment and find that those with higher levels of education have a weaker labor market response to changes in the Social Security regime.