Assessing the short-term impact of pension reforms on older workers' participation rates in the EU : a diff-in-diff approach

The performance of the European labour markets improved significantly during the second half of the 1990s (AER 2003). After having reached a peak in 1994, the unemployment rate started gradually to decline while both the employment and the participation rates kept rising. With increases of more than 8 and 7 percentage points, respectively for the employment and the participation rates, the female and the older workers were the most dynamic components. These improvements reflect long-term changes in the socio-economic behaviour such as a different attitude toward female employment and participation, improved health and working conditions which induce to retire at older ages. Yet, they took place in response to the reforms implemented during the period (e.g. ECB, 2007). The last decade witnessed important changes in European pension systems. Up to 1995, only few countries implemented pension reforms. By 2006, almost every European country had enacted reforms of the pension system. This richness of reforms across countries and time of their occurrence can be used to conduct a "policy experiment" of the effects of pension reforms on the participation rates of people aged between 50 and 64 years. Each policy intervention is considered as a discrete event that occurred at a specific time for each country. The event-study compares the value of one variable of interest after a certain reform or legislation has taken place with its value before such change has occurred. To control for other determinants not related to specific policy interventions, the findings of before-after comparison are compared with a control group made of those countries which did not implement a reform at least in one year covered by the sample period.