Pension Reform, Retirement Ages, and Labour Supply in the United States and the European Union (EU15) 1950-2060

Pension policy developments in the U.S. differ fundamentally from European trajectories in that the last major change to the public pension system was implemented in 1983 under the Ronald Reagan presidency. Part of the Reagan reform scheduled an increase in the normal pension eligibility age from 65 to 67 to be phased-in gradually between 2000 and 2027. Having previously focused on overall benefit generosity, since the mid 2000s European pension reform has now entered a new stage whereby it is to be anticipated that in the near future all major EU countries will have followed the U.S. example and have enacted legislation stipulating a normal pension eligibility age of 67 (or older). Taking a long 60 year look at trends in pensionable age policy, the paper places current policy initiatives in a broader context and considers how the different policies in the U.S. and EU15 countries have impacted on labour supply and participation of older people since the 1950s and how recent policies currently being phased-in are projected to impact during the next 50 years. Drawing on and extending the comparative work on the link between retirement income systems and labour market participation conducted in the 1990s by Blöndal and Scarpetta (1999) and Gruber and Wise (1999), we investigate not only the decline but also the recent increase in labour market participation of older citizens, and consider what it implies for the current and future ageing labour markets. Indeed, projections of the impact of retirement age reform discussed in the paper indicates that in future we can expect EU15 countries to have higher participation rates for older people than the United States, thereby turning the pattern of the past forty years on its head.