Social Security Reforms and the Changing Retirement Behavior in Germany

As in the other countries in this volume, the employment rate in Germany for those aged 55 to 69 had been declining in recent decades, and then began to rise dramatically. Among the 12 countries involved in this volume, Germany has experienced the largest increase in the employment rate of the 55–69 age group. This chapter investigates the role of structural policy changes since 1980. We summarize the institutional changes and pension reforms in Germany 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. In recent years the employment rate additionally increased due to the abolishment of specific early retirement pathways.