Social Security Reforms and the Changing Retirement Behavior in Germany

As much like other industrialized countries, in recent decades the employment rate in Germany for those aged 55 to 69 had been declining first to considerably rise again afterwards. This paper investigates the role of structural policy changes, in particular reforms of the pension system, since 1980 in explaining this trend reversal. We summarize the institutional changes and pension reforms that may account for the trend reversal, and calculate an “implicit tax on working longer”. We find that for both men and women the increase in the employment rate coincides with a reduction in the early retirement incentive. The reduction of incentives mainly stems from the introduction of actuarial deductions for early retirement and from the abolishment of specific early retirement pathways.