Labor Force Participation of Older Workers

mandag, 29 september 2014

The labor force participation of Dutch elderly workers is considered to be extremely low in comparison to other Western countries. In 2003 the participation rates of the older workers in the Netherlands were below the OECD average; 6 percentage point for women and 2 percentage point for men.

Especially in the 70s and 80s several financial incentives contributed to this decline. However, nowadays the sustainability of the Dutch pension system is under pressure. Both the increased life expectancy of individuals and the aging of the population increased the old-age dependency ratio, implying an enormous rise in public pension spending. Public spending is expected to rise from 4,7 % of GDP to 8,8 % in 2040. Hence, it is clear that reforms are inevitable in the future. Recently announced reforms by the Dutch government, imply in particular that individuals will have to keep working for a longer period. For this to be effective, the labor force participation of older workers has to increase. This thesis will both empirically analyze the effects of the upcoming reforms in the Netherlands, as well as analyze some scenarios, concerning the retirement decision of older workers. Hence, will the reforms lead to an increase in the period that individuals stay active in the labor force?