Publication Date

2010

Abstract

The governments of many developed economies are confronting a number of policy issues associated with ageing populations. For example, pension reforms, increasing the labour force participation of older workers and increasing the standard retirement age are various policy reforms suggested by the OECD to cope with the fiscal strain associated with ageing populations. However, many of the same governments now embracing these reforms had until recent times allowed the early exit of older workers from the labour force by various means in periods of excess labour supply, leading to the allegation that these governments had treated older workers as a ‘reserve army of labour’. In this paper panel models for the labour force participation of males aged 55-59 and 60-64 years in 12 OECD countries are estimated as a function of social security and labour market variables covering the time period 1967 to 2007. In contrast to previous OECD modelling, allowances are made for both country specific intercept and slope terms in various specifications, thereby allowing the incorporation of unique aspects of each country’s social security system or labour market. In addition, both long run models and also short run models incorporating error correction terms are estimated. The findings suggest that the ‘one size fits all’ policy advocated by the OECD is inadequate to address country specific factors affecting older worker labour force participation. The recent pension reforms are now out of character with the reserve army of labour explanation and results also imply that governments in many OECD countries will struggle to increase older male labour force participation through pension policy reform alone, without addressing the important role of the aggregate labour market.

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