Introduction to "Social Security Programs and Retirement Around the World: The Effects of Pension Reforms on the Income Distribution of Retirees"

The International Social Security (ISS) project compares the experiences of a dozen developed countries to study Social Security Programs and Retirement Around the World. The project was launched in the mid 1990s and was motivated by decades of decline in the labor force participation rate of older men. The first phases of the project documented that social security program provisions can create powerful incentives for retirement that are strongly correlated with the labor force behavior of older workers. Since then, countries have undertaken numerous reforms of their social security programs, disability programs, and other public benefit programs available to older workers. In a second stage of this project, we found that these reforms substantially reduced the implicit tax on work at older ages and that stronger financial incentives to work were positively correlated with labor force participation at older ages. In a third stage, we exploited time-series and cross-national variation in the timing and extent of reforms of retirement incentives and employed micro-econometric methods in order to show that the rising participation rates since the end of the 1990s have been caused by the pension reforms, in particular by the sharply increased financial incentives to work at older ages.
The pension reforms from the 1980s through 2020 may therefore be celebrated as a success story in fostering old-age labor force participation, which is important in the face of rapid demographic aging. However, there may be negative side effects. The main question to be answered by this eleventh phase of the project is whether the reforms have increased income and wealth inequality for retirees by harming low-income workers who cannot offset benefit cuts by saving and cannot work longer due to bad health. Based on a counterfactual analysis that employed structural retirement models to draw causal inference, our main conclusion is that income inequality among retirees has not generally increased due to the reforms. In six of the ten countries in this study, pension reform actually decreased income inequality.