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International Social Security Project

The National Bureau of Economic Research (NBER)’s International Social Security (ISS) project was established in the mid-1990s by Jonathan Gruber (MIT) and David Wise (Harvard Kennedy School of Government). Its goal is to study the effects of public pensions on work and retirement behavior, and related issues affecting older workers, based on the experiences of twelve developed countries.

Point of departure for this long-term research project was the observation that labor force participation rates of older men fell in many developed countries during the 20th century. Moreover, dramatic cross-country differences emerged in the typical age of labor force exit. Among men ages 60 to 64, the employment rate in 1995 was less than 20 percent in Belgium, France, and the Netherlands, as compared to about 50 percent in the US and Sweden and 70 percent in Japan.

This poses two critical questions about pensions and men’s work. First, can the common trend of declining labor force participation be explained by rising pension coverage and generosity over this period, or were other factors such as health improvements or occupational shifts more critical? Second, can the large differences across countries in the share of men who work at older ages be explained by differences in pension systems, or do they result instead from differences in other factors such as health, labor demand, or culture?

Studying the effect of public pensions on retirement in the context of a single country is inherently difficult because pension programs are often national programs that cover all workers. While workers may be entitled to different pension benefits, this is usually as a result of having had different work histories or family circumstances, factors that themselves may have an independent effect on retirement.

The key insight behind the ISS project is that the different pension provisions adopted by countries effectively create a “natural laboratory” that can be used to study the effect of pensions on retirement. Differences in pension generosity, early and normal retirement ages, actuarial adjustment for delayed claiming of benefits, and other provisions can create large differences in the incentive to work at older ages. The twelve countries participating in the project – Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom, and the United States – encompass substantial variation in pension provisions.

The ISS project has had ten phases to date. The first two phases examined the relationship between the financial incentives for retirement that result from social security program provisions and labor force participation at older ages. Subsequent phases explored the fiscal implications of social security reform, the relationship between the employment of older workers and youth unemployment, trends in health and disability insurance, the effect of incentive measures that incorporate disability insurance on retirement, and the health capacity to work at older ages. In the late 1990s, the trend towards shorter working lives ended and even reverted. Hence, the most recent phases of the project, now directed by Axel Börsch-Supan and Courtney Coile, document how public pension reforms over the past several decades have increased the incentive to work at older ages.

During its first 10 phases, the ISS project has focused on the effects of social security program provisions on the average worker. In the current phases 11 and 12, the project has changed this focus: The same twelve countries that have participated from the beginning will now study how pension reforms have affected the inequality of income and health after retirement.