Early exit from the labour force between exclusion and privilege: Unemployment as a transition from employment to retirement in West Germany

Abstract

Over the past twenty-five years, unemployment has been growing continuously in West Germany. In this study one of the reasons for growing unemployment is analysed: unemployment of older people in their transition from employment to retirement. First, the different possibilities of transitions into retirement are explained within the framework of social security regulations. Taking this legal framework as a starting point, early retirement passages are then modelled with the IAB unemployment sub-sample. It will be shown that - due to the long duration of these unemployment episodes - early retirement contributed considerably to the rise of total unemployment. Early retirement patterns will be broken down by economic sub-sectors and establishment size. It turns out that this kind of unemployment originates primarily from large establishments in manufacturing and extractive industries. Multivariate analysis presented at the end of the paper also includes personal characteristics such as gender or skills and income levels. In the light of these findings, the 'push' and 'pull' hypothesis common in explaining early exit are discussed. Drawing on the statistical findings as well as on the institutional analysis, it is argued that both kinds of factors are at work.