The emerging trend of work beyond retirement age in Germany. Increasing social inequality?

Population ageing, demographic change and the financial crisis has put the financial sustainability of the German pension system at risk. In reaction to these challenges, Germany recently abandoned generous early retirement policies and moved towards policies encouraging higher employment among the elderly.

In this article we evaluate how these labour market and pension policies affected the retirement decisions of older workers in Germany over the last three decades. Complementing previous research on early retirement, we focus in particular on those working past the mandatory retirement age of 65 years and examine whether the composition of this group of postretirement-age workers has changed over time.

We analyse pooled cross-sectional data from three rounds of the German Ageing Survey which allow us to cover the last three decades from 1980 to 2008. Estimating multinomial logit models we distinguish explanatory factors on the individual, organizational and institutional level that frame the decision to leave the labour market before the age of 65, to stop working at 65 or to work past 65.

Over the last three decades, the share of German workers leaving the labour market after the mandatory retirement age of 65 has increased markedly. This trend towards working longer has changed particularly among the low educated workforce which in previous decades traditionally has exhibited a tendency to retire early. In contrast to high-skilled workers, the decision to work longer among low-educated workers is mainly driven by financial need (and is usually not in line with their desire or their ability to work for longer).

Our findings suggest an increase in social inequality in retirement decisions as a result of the policy shift towards activation. We conclude by arguing for a more fine-grained understanding of the reasons why people work longer. Such research would provide valuable insights into how to design future labour market and pension reforms preventing a rise in social inequalities.