Disability retirement and unemployment - substitute pathways for labour force exit? An empirical test for the case of Germany

This paper studies the determinants of disability retirement and unemployment of older workers, two labour market phenomena which the German public discussion combines under the label of early retirement. The implicit assumption that these two mechanisms are exchangeable pathways into permanent retirement is tested. Using panel data the transition rates from employment into disability retirement and into unemploymentare estimated and compared. Statistical tests reject the hypothesis that disability retirement and unemployment are substitutes.