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Is it worth raising the normal retirement age? A new model to estimate the employment effects
Hermes Morgavi* 
Article | Year: 2025 | Pages: 339 - 367 | Volume: 49 | Issue: 3 Received: December 16, 2024 | Accepted: March 27, 2025 | Published online: September 3, 2025
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
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Effect
of raising the normal retirement age by 12 months on average age of labour market
exit (months)
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Blöndal and Scarpetta (1999)
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1.1 to
1.4
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Gal and Theising (2015)
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1.4
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Égert and Gal (2017)
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1.4
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Grigoli, Koczan and Tapalova
(2018)
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2.3
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Geppert et al. (2019)
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2.4
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Turner and Morgavi (2021)
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2.7-4.7
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Minimum
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Median
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Mean
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Maximum
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Standard
deviation
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ER 55-74
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13.3
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32.0
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32.7
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57.5
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9.7
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UBGR
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1.9
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26.7
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23.5
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55.5
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12.7
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ALMP
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2.3
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27.7
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31.2
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97.5
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21.4
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Average tax wedge
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1.9
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31.0
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30.0
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48.3
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9.2
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Excess coverage
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-4.7
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20.7
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29.6
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87.3
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26.7
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EPL
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0.1
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2.3
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2.1
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4.6
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0.9
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ETCR
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0.5
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1.8
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2.1
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5.4
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1.0
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ER 25-54
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58.4
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80.2
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79.0
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88.6
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5.4
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LE 65
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74.4
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93.4
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92.9
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115.0
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8.1
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Note: ER 55-74 is the employment rate of people aged 55-74 expressed in percentage; UBGR is the gross unemployment benefit levels expressed in percentage of the previous gross earning; ALMP is the detrended active labour market policy spending on employment as a share of GDP per capita; Average tax wedge is the average tax wedge for a couple with 2 children and prime earner at 100% and second earner at 67% of the average wage; Excess coverage is the difference between the coverage of wage bargaining agreement, expressed in percentage, and the share of workers who are represented by unions covered; EPL is the OECD Strictness of employment protection for regular contract from individual and collective dismissals, the indicator, which measures the strictness of employment protection on a scale from 0 to 6, where higher values indicate more stringent regulations; ETCR is the component on regulation of network industries of the OECD PMR indicator, which measures the pro-competitive regulatory settings on a scale from 0 to 6, where higher values indicate more restrictive regulations; ER 25-54 is the employment rate of people aged 25-54 expressed in percentage; LE 65 is the life expectancy at 65. This last variable is computed by multiplying the life expectancy in years for women and for men by the share of men and women aged 65+ on the population aged 55-74 expressed as percentage. These statistics are calculated on the estimation sample, which starts from 1992 and ends in 2019, with different coverage among countries. Source: For ER 55-74, OECD Employment database; for UBGR, OECD Social Protection and Well-being database; for ALMP, OECD Labour database; for Average tax wedge, OECD Tax statistics database; for Excess coverage, ICTWSS database; for EPL, OECD Labour database; for ETCR, OECD PMR indicator database; for ER 25-54, OECD Employment database; for LE 65, OECD Health database; and OECD Employment database.
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Explanatory variables
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Dependent
variable: employment rate of the 55-74 age group
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Variant
equations
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(1)
Base
model
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(2)
(1)
+ % pop. above normal ret. age
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(3)
(2)
+ Minimum retirement age
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(4)
(3)
+ Private-pension countries
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(5)
(4)
+ Pipeline effect
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Labour and product market regulations
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EPL regular contracts
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5.863**
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6.283**
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7.932**
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8.138**
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8.448**
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Pension policies
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Normal retirement age
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1.320**
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Pipeline effect
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-0.087
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% pop. above minimum ret. age
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-0.098
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-0.095
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-0.132
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% pop. above normal ret. age
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-0.286**
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-0.243**
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% pop. above normal ret. age
(private pensions countries)
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-0.172
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-0.176
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% pop. above normal ret. age
(non- private pensions countries)
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-0.256**
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% pop. above normal ret. age
(early exit countries)
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-0.265**
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% pop. above normal ret. age
(other countries)
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-0.275***
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Other variables
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ER 25-54
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0.615***
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0.608***
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0.586***
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0.583***
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0.606***
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Life expectancy 65+
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0.561***
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0.538***
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0.506***
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0.516***
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0.493***
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RMSE
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2.66
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2.60
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2.61
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2.60
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2.60
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Adjusted
(%)
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91.8
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92.2
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92.1
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92.1
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92.1
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Obs.
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522
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522
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522
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522
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522
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Countries
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27
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27
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27
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27
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27
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Time coverage
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1992-2019
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1992
- 2019
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1992-2019
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1992-2019
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1992-2019
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Note: The table shows the estimated coefficients of the long-term equation of the model. Model (1) corresponds to the base model. Model (2) is the same as model (1) but instead of using the normal retirement age for pensions as pension policy variable, the share of population above the normal retirement age is used. Model (3) uses the database created by Geppert et al. (2019) integrated with the data from OECD (2021, 2023), which distinguish between minimum retirement age and normal retirement age. Model (4) introduces the distinction between countries where the private pension funds are important. Model (5) is equivalent to model (4), but the pipeline effect for early exit countries is added. The RMSE and the adjusted R2 shown in the table refer to the long-term equation only and hence are computed excluding the lagged and leading variables used in the Dynamic OLS methodology to estimate it. *** p < 0.01, ** p < 0.05, * p < 0.10. Source: Author’s calculation.
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Minimum
retirement age
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Normal
retirement age
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Men
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Women
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Men
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Women
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Minimum retirement age (men)
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1.00
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Minimum retirement age (women)
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0.73
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1.00
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Normal retirement age (men)
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0.28
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0.41
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1.00
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Normal retirement age (women)
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-0.10
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0.52
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0.59
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1.00
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Note: The table shows the correlation among the retirement age variables. Source: Author’s calculation.
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(1)
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(2)
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(3)
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(4)
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(5)
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Study
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Country
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Year of reform1
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Increase in normal retirement age (months)
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Effect on average effective age of retirement (months)
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Original study
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Proposed model
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Mastrobuoni
(2009)
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USA
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2000
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2
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1
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0.6
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Fehr, Kallweit
and Kindermann (2012)
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DEU
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2008
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24
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9-12
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8.4
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Hanel and
Riphahn (2012)
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CHE
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2001 & 2005
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12
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2.3-5.4
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4.2-4.3
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Lalive
and Staubli (2015)
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CHE
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2001
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12
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7.9
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4.2
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Etgeton
(2018)
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DEU
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2012
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24
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8.4
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8.1
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Fodor,
Roehn and Hwang (2022)
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SVK
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2020
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7
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7
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5.7
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Source: Author’s calculations.
Blöndal, S. and Scarpetta, S., 1999. The retirement decision in OECD countries. OECD Economics Department Working Papers, No. 202 [ CrossRef]
Borghans, L., Gielen, A. C. and Luttmer. E. F. P., 2014. Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform. American Economic Journal: Economic Policy, 6(4), pp. 34-70 [ CrossRef]
Etgeton, S., 2018. The effect of pension reforms on old-age income inequality. Labour Economics, 53, pp. 146-161 [ CrossRef]
Fehr, H., Kallweit, M. and Kindermann, F., 2012. Pension reform with variable retirement age: a simulation analysis for Germany. Journal of Pension Economics and Finance, 11(3), pp. 389-417 [ CrossRef]
Fodor, J. Roehn, O. and Hwang, H., 2022. Determinants of labour market exit of older workers in the Slovak Republic. OECD Economics Department Working Papers, No. 1700 [ CrossRef]
Gal, P. and Theising, A., 2015. The macroeconomic impact of structural policies on labour market outcomes in OECD countries: A reassessment. OECD Economics Department Working Papers, No. 1271 [ CrossRef]
Geppert, C. [et al.], 2019. Labour supply of older people in advanced economies: the impact of changes to statutory retirement ages. OECD Economics Department Working Papers, No. 1554 [ CrossRef]
Grigoli, F., Koczan, Z. and Tapalova, P., 2018. Drivers of Labor Force Participation in Advanced Economies: Macro and Micro Evidence. Chap. 18/150 in IMF Working Papers, No. 150 [ CrossRef]
Hanel, B. and Riphahn, R. T., 2012. The timing of retirement — New evidence from Swiss female workers. Labour Economics, 19(5), pp. 718-728 [ CrossRef]
Kohli, M. (ed.), 1991. Time for retirement: Comparative studies of early exit from the labor force. Cambridge University Press.
Lalive, R. and Staubli, S., 2015. How does raising women’s full retirement age affect labor supply, income, and mortality? NBER Working Paper, No. 18660.
Manoli, D. and Weber, A., 2016. The Effects of the Early Retirement Age on Retirement Decisions. NBER Working Paper, No. 22561 [ CrossRef]
Mastrobuoni, G., 2009. Labor supply effects of the recent social security benefit cuts: Empirical estimates using cohort discontinuities. Journal of Public Economics, 93(11-12), pp. 1224-1233 [ CrossRef]
Morris, T., 2021. The unequal burden of retirement reform: Evidence from Australia. Economic Inquiry, 60(2), pp. 592-619 [ CrossRef]
OECD. 2019. Pensions at a Glance 2019: OECD and G20 Indicators. Paris: OECD [ CrossRef]
OECD, 2021. Pensions at a Glance 2021: OECD and G20 Indicators. Paris: OECD [ CrossRef]
OECD, 2023. Pensions at a Glance 2023: OECD and G20 Indicators. Paris: OECD [ CrossRef]
Staubli, S., 2011. The impact of stricter criteria for disability insurance on labor force participation. Journal of Public Economics, 95(9-10):, pp. 223-1235 [ CrossRef]
Staubli, S. and Zweimüller, J., 2013. Does raising the early retirement age increase employment of older workers? Journal of Public Economics, 108, pp. 17-32 [ CrossRef]
Turner, D. and Morgavi, H., 2021. Revisiting the effect of statutory pension ages on the Participation Rate. Public Sector Economics, 45(2), pp. 257-282 [ CrossRef]
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September, 2025
III/2025
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