dropping, which made it increasingly difficult for the labor force to support those who had retired. In the United States, the median number of years in retirement for men increased nearly 50 percent between 1965 and 2003, from 13 years to almost 19 years. Roughly half of these additional years were related to gains in life expectancy and the other half to earlier retirement (Goda, Shoven, and Slavov, 2009). In other industrialized countries, the trend has been more extreme. Figure 5-16 shows the percent increase in life expectancy at age 65 together with the percent decline in the labor force participation of men aged 60–64 in the 12 countries participating in the International Social Security Project. In all of the countries life expectancy has increased and in all of the countries labor force participation has declined, although there is substantial variation across countries.

What is the gain from prolonged labor force participation? An increase in the labor force participation of older persons will increase production (gross domestic product). Increased production will increase tax revenues, which should in turn increase available funding for social security and health care. In addition, personal savings may increase with longer working lives. This would essentially happen by default with 401(k)-like personal retirement accounts. Because a large portion of private saving is through personal retirement accounts, this effect may offset the possibility that some persons would save less because they anticipated the need to support fewer retirement years. In the United States, an increasingly large proportion of resources has been going to health care and pensions for older persons. If the resources of the country are to advance in future years, the education of the current young is of critical importance. If the working lives of older people lengthen, not only will there be more resources to pay Social Security


FIGURE 5-16  Increase in life expectancy and decline in labor force participation in 12 countries, 1960s to early 2000s. JP-Japan; CA-Canada; SW-Sweden; US-United States; UK-United Kingdom; SP-Spain; IT-Italy; GE-Germany; DE-Denmark; NE-Netherlands; BE-Belgium; FR-France. SOURCE: Data compiled as part of the National Bureau of Economic Research International Social Security Project.

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