The Costs of Early Retirement in the OECD

IoES Working Paper No. W01:02

18 Pages Posted: 2 Jun 2001

See all articles by Tryggvi Thor Herbertsson

Tryggvi Thor Herbertsson

University of Reykjavik

J. Michael Orszag

Willis Towers Watson - Reigate (Surrey Office); Institute for the Study of Labor (IZA)

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Date Written: May 10, 2001


Despite substantial increases in longevity, the age of retirement in the industrialized countries has steadily fallen throughout most of the 20th century. In 13 OECD countries, the employment-population ratio of 55-64-year-old males fell by an average of more than 12 percentage points between 1979 and 1998. Similarly, labor force participation rates for those 65 and above have fallen significantly. The economic cost of the low labor market participation, in terms of lost output, benefit payments, and lower tax base is substantial. However, part of the cost of low labor market participation is cyclical or structural and hence separate from the costs of early retirement. This paper develops a simple framework to assess the specific costs of early retirement and applies it using data from the OECD countries.

Keywords: Early retirement, labor supply/demand, foregone output

JEL Classification: H55, J14, J21, J26

Suggested Citation

Herbertsson, Tryggvi Thor and Orszag, J. Michael, The Costs of Early Retirement in the OECD (May 10, 2001). IoES Working Paper No. W01:02. Available at SSRN: or

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

+354 8613162 (Phone)


J. Michael Orszag

Willis Towers Watson - Reigate (Surrey Office) ( email )

Watson House
London Road
Reigate, Surrey, RH2 9PQ
United Kingdom
+44 1737 241144 (Phone)
+44 1737 241496 (Fax)

Institute for the Study of Labor (IZA)

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Bonn, D-53072

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