Shrinking Labor Forces and Early Retirement

University of Iceland IoES Working Paper No. W01:10

14 Pages Posted: 8 Dec 2001

Date Written: November 29, 2001


The withdrawal of older workers from the labor force creates a variety of economic challenges, including an increase in unused production capacity. Costs due to early retirement measured in terms of forgone output averaged 6.3 percent of potential gross domestic product in the OECD in 1998. These costs, which vary greatly from country to country, are highest in Hungary (15.9 percent of potential output) and lowest in Iceland (0.5 percent). These differences are important for policy makers to the extent that their causes are rooted in economic policy and structure rather than in cultural and environmental factors. In light of these costs, this paper attempts to summarize and discuss alternative theories on why people retire early and how early retirement programs came about, in order to understand better the roots of the problem.

Keywords: Participation rates, early retirement, foregone output

JEL Classification: H55, J14, J21, J26

Suggested Citation

Herbertsson, Tryggvi Thor, Shrinking Labor Forces and Early Retirement (November 29, 2001). University of Iceland IoES Working Paper No. W01:10. Available at SSRN: or

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

+354 8613162 (Phone)


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