International Evidence on Social Security and Retirement.

• Position: Brief Article

On June 1 and 2, the NBER held a conference on social security systems and retirement around the world as part of a cross-national research effort to compare retirement income programs in a dozen developed countries, including the United States, and to evaluate how the various programs affect retirement decisions. In each country; demographic changes have placed increasing financial pressure on the social security systems, a situation that is compounded by an increasing number of workers who retire young.

An earlier phase of this same project culminated in a widely cited NBER volume on Social Security and Retirement Around the World, published by the University of Chicago Press in 1999. For each country, the book has a chapter describing the social security policy, the work and retirement incentives associated with that policy, and the age-specific patterns of retirement in that country. This initial set of studies suggests that the retirement policies themselves contribute to earlier retirement by often providing generous retirement benefits at young ages and imposing large financial penalties on labor earnings beyond the age of eligibility for retirement benefits. As a result of these policy incentives, there is a strong correspondence between the age at which benefits are available in each country and the age at which people tend to leave the labor force.

The June conference completed a second phase in this collaborative research effort. In this phase of the project, researchers from each country used micro-data (data on individuals and their labor force decisions) to model the incentive structure of the retirement systems and their effects on retirement more formally. Specifically, they asked how the provisions of the social security programs -- interacting with the past and potential future earnings possibilities of individuals -- influence the decisions about work and retirement that people make.

The micro-models consider the "accrual value" of social security for individuals as they age: the discounted value of any additional (or lost) social security benefits that people will obtain (or lose) by continuing to work. For most workers, and in most countries, the accrual value becomes negative at some age because workers must give up social security benefits...