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his or her consumption and years of retirement. The downward slope of the budget
constraint indicates that if the worker wants to have a longer retirement he or she will
have to give up some consumption. Based on this trade-off, it is possible to introduce
the worker’s indifference curves between retirement and consumption. A utility-
maximizing worker will decide to retire when his or her indifference curve is tangent
to the budget constraint.
More generous pension benefits also cause both income and substitution effects, but
both effects operate in the same direction under such a system (Ehrenber and Smith,
2016). The simple economic model suggests that an increase in pension benefits would
rotate the budget constraint at 80 years of age (Ehrenberg and Smith, 2016). In this
case, the lifetime income associated with work is not affected; however, the lifetime
income associated with pension benefits increases (Ehrenber and Smith, 2016). An
increase in pension benefits moves the budget constraint outward increasing the
demand for leisure, and it also reduces the price of retirement (Ehrenber and Smith,
2016). Therefore, higher pension benefits lead to earlier retirement. The economic
model is completed by adding a series of variables that influence workers’ behavior
in addition to non-financial (economic) incentives. Empirical evidence suggests that
retirement age is directly affected by benefit level, among other factors (Coile, 2015;
Ehrenberg and Smith, 2016). Studies show that increasing workers’ wage by 10%
lowers the probability of retirement by 6%; and increases in pension benefits of 10%
reduces age of retirement by one month (Ehrenberg and Smith, 2016).
The pattern of labor force participation of older adults could be affected by following
four major factors: the existence of financial incentives to early retirement in public
pension systems (Gruber and Wise, 1999; 2004), higher income and expansion of the
leisure class that allow individuals to allocate their time out of the labor force (Costa,
1998), revised social security policies from political pressure caused by population
aging (Profeta, 2002), and rising income and socioeconomic changes that negatively
affect the proportion of older adults that stay in the labor market (Clark, Young, and
Anker, 1999). Although research on older adults in developing countries has boomed
since the 1990s (Aguila, 2014; de Carvalho-Filho, 2008; Cotlear, 2011), much of
it concentrates on basic demographic analysis and the study of trends in mortality,
morbidity, and migration; research on income, wealth, economic support, and labor
supply of older workers is still relatively limited (Aguila, 2014; de Carvalho-Filho,
2008; Cotlear, 2011).
Growing national income levels can, however, enable older adults to retire, but
national income growth is also usually related to a greater income potential and higher
opportunity costs for continued work. Furthermore, a higher GDP may also correlate
with health and skills at older ages, which can relate to a higher productivity potential
at older ages, and hence this may explain the later retirement of richer countries
in some countries in recent years (Dingemans, Henkens, and van Solinge, 2016;
Larsen and Pedersen, 2013). The highly educated have more to gain from continuing
work partly because of deferred payment systems where older workers above their
marginal product are more commonly used among highly educated workers (Larsen
and Pedersen, 2013; Dingemans, Henkens, and van Solinge, 2016). Earnings rise the
most with age for the more educated. For example, while the average wage ratio of
45–54 years old to 25–29 years old was 1.26 for those with upper secondary education,
it was 1.92 for those with university education (OECD, 1998). This implies that
working until relatively older ages can be more attractive among the better paid highly
educated, although the wage-cost ratio is higher, making this group more costly to
employ.
Studying retirement and older males’ labor force behavior has several important
implications. First, rapid population aging may place a burden on the pension systems
that are not ready to support such large group. Second, those systems have impacts
on the labor supply of workers, and it is important to investigate whether the systems
affect labor market behavior and how public policy can be implemented so as not to
place excessive burden on current workers. Lam et al. (2006) provide an overview of

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