Self-employment around Retirement in Europe

Transcription

1 Self-employment around Retirement in Europe Stefan Hochguertel Free University (VU) Amsterdam First draft. September 2005 (preliminary and incomplete) Abstract. This paper uses the new pan-european SHARE survey data to study retirement behavior of the self-employed vis-a-vis the wage employed. The (cross-sectional) sample covers respondents from ten different countries, aged 50 and above. Self-employment rates differ strongly across countries, but tend to increase with age everywhere. While labor force participation rates suggest early exit for a majority of countries, the share of self-employed in the labor force increases with age in most countries. We find the self-employed to work longer hours, to be more flexible in their hours allocation, and to retire later in all countries. We relate these differences in observed behavior to documented international variation in labor market and social security institutions. Incentives emanating from institutions matter substantially for the retirement behavior of the self-employed. Yet, even controlling for country-and-employment specific incentives, job characteristics, demographics, and pension entitlements, we find that the self-employed have a stronger attachment to work in the sense of not wanting to retire as early as possible. We find no evidence for this behavior to be driven by consumption or wealth. JEL codes: J14, J23, J26 Key words: self-employment, retirement, pensions, Europe, institutions Correspondence to: [email protected] Thanks to: noone yet

2 1 Introduction Against the background of a secular decrease, self-employment has received increased policy attention around the globe, not least because it is thought to be alleviating regional unemployment both by offering an alternative to wage employment and by having new entrepreneurs create additional jobs. Similarly, self-employment may be thought of alleviating some of the financial burden resulting from demographic pressure on pay-as-you-go pension systems since the self-employed tend to work longer. From an individual s point of view, taking up self-employment before retirement as a bridge job may be an attractive option: older people of working age have lower reemployment probabilities conditional on being out of work, while at the same time selfemployment offers considerable flexibility as to choosing hours of work. Foreseeable cuts in the generosity of public pensions as well as in other parts of social security systems may in addition create the need for older workers to tap new sources of income generation. Such issues have been brought up in the US literature, where the retirement behavior of older men has received academic interest and patterns of retirement reversals and partial retirement have been identified to be of empirical relevance (Gustman and Steinmeier (1984), Honig and Hanoch (1985), Ruhm (1990), Berkovec and Stern (1991), and Blau (1994)). Conversely, however, the self-employed may also have an innate preference for work or otherwise be induced to work longer because of non-material returns that they receive from their work. Hamilton (2000) documents that money income of the self-employed often falls short of that of comparable wage-earning workers, and suggests that compensating differentials in the form of job satisfaction etc. are at play. Observing self-employment rates to increase with age may simply be due to self-employed surviving longer in the labor market than employees, without anyone entering self-employment in a late phase of the working life cycle. This paper investigates retirement options and retirement behavior of the self-employed using comparable micro data from ten OECD countries. The data is drawn from the first cross-section (2004) of the SHARE project, an international data collection effort on health and retirement issues in Europe. The sampled population are residents aged 50 and above, making the survey comparable to its well-known older US sibling, the Health and Retirement Study (HRS). The SHARE survey is a natural candidate to further explore and analyze retirement issues of the self-employed in a pan-european comparison. It covers the relevant cohort of people that are already retired or are in or approaching the pre-retirement stage of their life-cycles, and its design and questionnaire allow reasonably detailed investigation into 1

3 retirement issues, including observing previous employment modes, retirement motives, wealth, and both subjective and objective measures of health. Sample sizes are large by comparison, which is important since the empirical literature has often difficulties identifying correlates of behavior for the rather heterogeneous group of self-employed. The important additional insights it can deliver stem from substantial inter-country heterogeneity in terms of institutional designs as sources of observed behavioral variation. In particular, pension and social security provisions differ widely across Europe, for both the general population and for the self-employed in particular. Whereas the selfemployed can typically draw on public old-age pensions, other types of retirement modes are either not always available or not chosen. For instance, the self-employed are much less frequently or much less generously covered against certain risks such as disability or unemployment and are less often eligible for early retirement. We explore the extent to which incentives emanating from social security institutions influence observed work and retirement behavior of the self-employed vis a vis employees, and in how far individual attributes of the self-employed compared to dependent workers can help characterize the choices made. First analyses reveal not only substantial differences both across countries and between employees and self-employed, but also point to the self-employed having different preferences as regards work and retirement. In particular, the self-employed work longer hours and are more flexible in their hours allocation; they retire later, but also depend more on public pensions for retirement as opposed to the employed. While part of the explanation of the retirement age gap may lie in access to early retirement, the self-employed choose to retire later than employees even conditional on job characteristics and personal attributes, including measures of health, wealth and consumption levels. We find strong evidence for postponement of retirement for the self-employed being attributable to those that work the longest hours, conditional on job characteristics. This is suggestive of an individual preference effect in the sense that people deriving a very different marginal utility from work selecting into self-employment and hence wanting to work more and retire later compared to those that pursue careers as employees. A higher attachment to work for the self-employed also becomes manifest in much longer job tenure for this group. Among the retired, the previously self-employed report much larger opportunities for continued work after having passed official retirement age for (almost) any country. Bridge jobs, here defined as jobs that are taken up not earlier than one year before first drawing a pension, are indeed often self-employed jobs, even though their prevalence in Europe is limited. As regards motives for retirement, the self-employed are less likely to retire than employees due to becoming eligible for a public pension (controlling for institutional differ- 2

4 ences between countries), even though they depend more on public pensions than employees for financing retirement. Instead, the self-employed choose to retire to enjoy life and for family related reasons (retiring jointly with their spouses or because of ill health of relatives or friends). This may again be consistent with preferences for flexibility determining occupational choice in the first place. The following section shortly reviews related literature on self-employment, retirement, and institutions, Section 3 introduces data and presents descriptive statistics, Section 4 contains regression results. Short conclusions are offered in Section 5. 2 Previous Evidence on Self-employment, Institutions, and Retirement There is a substantive and growing, yet not very voluminous empirical literature on selfemployment. Part of that literature is reviewed in Le (1999) and Parker (2004a). We shall here briefly review papers that involve international comparisons or focus on retirement issues. Most studies are single-country studies, however, and do not address issues arising out of differences in institutional designs across countries. Very few studies look at retirement behavior of the self-employed or employment choices of the (pre-)retirement cohort. There are no papers in the intersection. Blanchflower (2000) provides comparative time-series and micro-data evidence from OECD countries and establishes that many stylized facts that have been found elsewhere in single-country studies also hold up in the international comparison. For instance, selfemployment rises with age, is higher among men, and has nonlinear patterns in education, and varies across countries as far as local unemployment is concerned. He points out that despite low self-employment rates across industrialized countries, a larger share of individuals (including wage employed) would prefer to be self-employed. He finds that the self-employed are more satisfied with their jobs than the employed, a result consistent with Hamilton s (2000) finding that the self-employed may actually earn less than employees (compensating differential). In terms of institutional variation, Blanchflower finds that geographic mobility is low among the self-employed and ascribes this to ties to the customer base. Carrasco and Ejrnæs (2003) compare self-employment rates between Denmark and Spain based on several years of panel data from the European Community Household Panel. They focus on gender issues and relate them to institutional differences between the two countries. In particular, they argue that the low incidence of female self-employment in Denmark compared with the high incidence in Spain has to do with availability of parttime wage employment and child care facilities. The relative flexibility of the Danish la- 3

5 bor market coupled with social policy enabling mothers with infants to find affordable child care makes self-employment relatively less attractive compared to part-time wage employment. The reverse applies to Spain. Schuetze (2000) compares patterns and trends in both Canada and the US and focuses on whether the tax system induces self-employment. He argues that the institutional differences between the two countries are largest in the tax domain, and relatively minor in other respects. His interpretation of the empirical finding that self-employment reacts positively to tax rate increases in the main job but less so in a secondary job is not that of a tax-sheltering effect (self-employeds income can be subject to lower rates), but rather a larger possibility of underreporting incomes for the self-employed. Retirement issues have received very scant attention in the literature. Quinn (1980) appears to be the earliest such study. He uses two waves of the Retirement History Survey (1969, 1971) and reports that downward flexibility in hours worked appears to be driving the gradual retirement behavior of the self-employed. In particular, career selfemployed are more likely to be in the labor force than employees conditional on age when retirement age draws near. Fuchs (1982) uses three waves of same survey and finds that only people with previous self-employment experience or white collar workers with previous self-employment-similar occupations (managers etc.) may venture into becoming self-employed before retiring. Parker (2004b), using a sample of 200 self-employed individuals from the British Retirement Survey (1988/89 and 1994), finds that retirement transition probabilities are much lower for people having been self-employed in the earlier wave, conditional on age. Bruce et al. (2000) provide evidence based on three waves of HRS data, and argue that foreseeable cuts in the generosity of public pensions make self-employment an attractive mode of bridge-employment for pre-retirement workers. This view accords well with a few other papers that recognize retirement as a process rather than a transition into an absorbing state (Gustman and Steinmeier (1984), Honig and Hanoch (1985), Ruhm (1990), Peracchi and Welsh (1994), Chan and Huff-Stevens (2001), Maestas (2004)). 3 Data Sources, Trends, Patterns, and Institutions in International Comparison 3.1 Data Sources In the following subsection we briefly present some salient features of European labor market participation and self-employment in particular. We use data from the OECD National Accounts statistics, and micro survey data from the SHARE project. Most OECD data 4

6 refer to the general population or the total labor force in a country. In particular, unless otherwise indicated, they do not refer to particular age groups. The main body of this paper is based on a new pan-european micro survey covering health and retirement related issues for the population aged 50 and above, SHARE. The survey has been conceived by an interdisciplinary international group of researchers and its design is subject to substantial coordination efforts in terms of data comparability. The survey is administered by the Research Institute for the Economics of Aging at Mannheim University, Germany, while data collection is coordinated by Centerdata at Tilburg University, Holland. The data design is inspired by and most closely resembles the familiar US Health and Retirement Study (HRS), an ongoing project of the Institute for Social Research at the University of Michigan. The SHARE data base covers eleven countries from various European regions: Scandinavia (Sweden [SE] and Denmark [DK]), Western Europe (France [FR], Belgium [BE] and the Netherlands [NL]), 1 Central Europe (Germany [DE], Switzerland [CH] and Austria [AT]), and Mediterranean (Spain [ES], Italy [IT] and Greece [GR]). The sample was drawn in the spring of 2004, and for the time being only a cross section is available. In terms of content, SHARE covers a number of domains that are relevant to the present paper, among which employment and work history, income, consumption, wealth, and health. Amounts of income and wealth concepts have been converted to the Euro currency and additional corrections for differences in purchasing power across countries have been applied. The first (preliminary) release of SHARE used in this draft has undergone first cleaning and consistency checking as well as (multiple) imputation of amounts. Self-employment as defined in the SHARE data is entirely self-reported ( are you selfemployed? ). The definition includes those working for a family business. The conventional SNA definition of self-employed workers in the OECD data is persons who are sole or joint owners of the unincorporated enterprises in which they work, excluding those unincorporated enterprises that are classified as quasi-corporations. 2 1 In the first data release of 29 april 2005, Belgium is not covered. 2 Differences in definitions are likely to contribute to differences in measured self-employment rates. This also holds true when comparing figures across published statistics from various sources for the same country at the same point in time. For instance, it will matter whether self-employment status is an assessed, taxrelevant fact, or whether grey areas of employment are counted towards self-employment or employment, such as subcontracted workers (for instance, in the construction industry), free-lancers or other types working on a franchise basis. Similarly, it is not always clear to what extent family members working in the same business are counted as employed or co-self-employed. See footnote 3 for an illustration. 5

7 3.2 Retirement and Self-employment in Europe Table 1 presents average self-employment rates across the SHARE countries from OECD data. Table 1 about here We notice the following: (a) there are pronounced and persistent differences in total self-employment rates across countries, ranging from 4.8% (SE 2003) to 45.8% (GR 1995). Mediterranean countries have in general very high rates, Northern countries very low ones, compared to Western or Central Europe. (b) In most countries we see a decline in total self-employment over the 14 year observation period (annual data are available and confirm the trend). (c) Taking out the agricultural sector alters the picture considerably: self-employment rates are lower across the board in non-agriculture, and the downward trend is not as pronounced as for all sectors. The contribution of the agricultural sector to self-employment is also stronger in some countries than in others. A remarkable case is Austria, whose self-employment rate falls to a third when disregarding agriculture. 3 Of course, European countries display a large heterogeneity in terms of industry composition of the entire labor force. It is perhaps less surprising that among the agricultural workers we find a large number of self-employed in most countries. In addition, however, there are substantial between-country differences when comparing the agriculture share among the self-employed and the total labor force. For instance, OECD data reveal that in % of all self-employed Austrians worked in agriculture. For Italy, the corresponding number was 8.8%. This may be compared with a total agriculture share (relative to the entire labor force) of only 13% and 4.4%, respectively, for these two countries. In most countries, agriculture accounts for less than 6% of total employment, whereas farmers (and fishermen) make up a large share of the self-employed. Table 2 reports cross-sectional unemployment rates for the same time span as Table 1. 4 We notice a strong positive correlation between (non-agricultural) self-employment and unemployment rates across the countries. Whereas the literature on self-employment status of individuals points out that within a given country two opposing forces may be at work that either push people into self-employment (when deteriorating labor markets leave self-employment as a last resort) or pull them out of it (when deteriorating aggre- 3 To illustrate the large differences across definitions mentioned in footnote 2, consider year 1995 of Table 1, all sectors. When consulting the ILO Labor Statistics database and defining self-employed as employers and own-account workers excluding contributing family workers, the corresponding numbers to Table 1 are: AT: 10.8, CH: 13.0, DE: 9.3, DK: 8.3, ES: 20.4, FR: n.a., GR: 33.7, IT: 23.4, NL: 10.7, SE: That means, only three of the countries have rates of comparable magnitude within one percentage point difference across definitions. 4 The source does not report on 1995 and

8 gate demand worsens business prospects for the self-employed), institutional differences across countries in terms of employment protection legislation may play a role in explaining the correlation here. The typical North-South differences are borne out. Table 2 about here The Table also shows the difference between older males and all males. In general, unemployment is lower among pre-retired men than on average. This may have to do with men becoming redundant in the last years of their active labor market period using alternative exit routes, including, for instance, disability or special retirement schemes for the elderly unemployed. Table 3 shows standard and early retirement ages. There is variation across time, gender, and type. Standard retirement age (eligibility for public pension) in 2003 for males is 65 in almost all cases, although some countries have reduced and others increased it over time. Standard retirement ages for females are typically equal to or below those for males, despite longer average life expectancy. Early retirement ages (to the extent that early schemes exist) tend to be lower than standard ages. Table 3 about here Table 4 shows in the first three columns labor force participation rates of older men (55-64) in 2003 and 2000 and effective retirement ages in Naturally, these series are very highly correlated. There is substantial variation across countries. French retire earliest, and Swiss and Greeks latest; France and Switzerland also display the lowest and highest labor force participation rates among older men, respectively. While such patterns have been documented before (e.g., Gruber and Wise, 1998, Blöndal and Scarpetta, 1999), the more recent data do show a noticeable increase in labor force participation between the years. Austria appears to be the only country where participation of older males has noticeably declined between 2000 and Table 4 about here Columns four through seven of Table 4 show retirement incentives of workers embedded in public pension systems, calculated by Duval (2003). Two scenarios are compared: retirement at age 60 and at age 65. The Table shows pension/earnings replacement rates at these ages and the implicit tax if people choose to work longer (in 2000). Again, there is substantial variation across countries. In many countries, there is a large disincentive to work beyond standard retirement age of This is particularly true for countries such 5 Implicit tax refers to the ratio of social security wealth accrual from working one more year and net earnings. In most countries, actuarially unfair systems imply that social security wealth declines with age, 7

9 as Austria, France, Italy or Spain, where the implicit tax lies in the range of 68%-92%. The same countries also have rather high replacement rates of 71%-95%. Countries where such disincentives are absent, like in the Netherlands or Germany, have substantially lower replacement rates of 61% and 44%, respectively. 6 Early retirement is also often possible, at least for workers. Again, substantial disincentive effects of working beyond the earliest possible retirement age are prevalent in many countries. These early retirement incentives contribute to the large gap between standard and actual retirement ages, as revealed by comparing Tables 3 and 4. 7 Gruber and Wise (1998, 2004) prefer to sum the implicit tax over a number of ages around retirement to assess the impact of the tax force to retire ; their numbers are replicated in column eight of our Table, indicating the strongest incentives for Italy, the Netherlands, and France. It is instructive, to compare the general picture obtained to data from the SHARE sample that covers workers of age 50 and above. Table 5 collects labor force participation rates by age and gender, and shows self-employment and unemployment rates (conditional on participation). We consider people to be participating if they work or are unemployed. We count everyone working who reports to be working (even after retirement or while in disability) or to be temporarily away from work. This was chosen in order to get a close definition with OECD data that count anyone as working who works a positive number of hours. The 2003 labor force participation figures from Table 4 can be directly compared with the figures in Table 5, column 4. It appears that SHARE (partly drastically) oversamples the active population in Greece and Germany, while the deviations for countries such as France, Spain, the Netherlands, or Sweden are minor. In any country, we observe higher participation rates among men than women. The inter-gender differences are partly very substantial and particularly pronounced in Mediterranean countries and Holland. Comparing participation for men when narrowing down the age window from (column 3) to (column 4) shows that in some countries, such as Austria, Germany, Italy, or the Netherlands, a substantial fraction of the male labor force seems to withdraw between ages 50 and 55. 8,9 The fifth column reveals that participation among men beyond standard retirement age can be substantial. Whereas typically between 3 and 6 percent of men in that age group continue working, very few work in which thus gives the strong incentive to retire early. 6 These replacement rates refer to before-tax incomes; after-tax replacement rates tend to be substantially higher, and can exceed 100%, especially in countries such as Italy. 7 The Netherlands sticks out in this comparison, since the underlying calculations are based on an early retirement plan (VUT) that has been phased out and replaced with an actuarially fair version (PP) whose disincentive effects are far less pronounced, see Euwals et al., These cross-sectional age patterns should not be causally interpreted as exiting from the labor force, as time and cohort effects will interact with the age pattern. 9 The age window for France is in column 3, compare Table 3. 8

10 Austria and Spain, two of the countries with the largest retirement incentives. Table 5 about here We next turn to self-employment rates. We define people to be self-employed when they declare themselves to be self-employed in at least one job (out of possibly several jobs). There are typically only few people that work both in wage employment and selfemployment, see the column both in the Table. Overall, a large fraction of the sample is working on their own, with typical geographical patterns mimicking those in Table A smaller share is self-employed among women than among men, for all countries except the Netherlands. Restricting (men s) age window from 50+ to 55+ increases the share of self-employed for many countries. Among those few workers that work after standard retirement age, a very large share tends to be self-employed. Figure 1 about here Figure 1 complements Table 5 by showing labor force participation rates and selfemployment rates (conditional on participation) for men aged 50 and above regressed on age. 11 Age is on the horizontal axis, with the origin at standard retirement age of Table 3. Many countries exhibit increasing self-employment rates with age, mirroring the decreasing labor force participation rate. These figures suggest two possible interpretations: the self-employed may have a lower conditional exit rate than wage earners, or, there is larger inflow into self-employment at older ages than into wage employment. 12 Stark differences exist between wage earners and self-employed workers in terms of actual hours worked. Employees are often constrained in their choice of hours by institutional (contractual) restrictions. The self-employed are much more flexible in adjusting their hours according to their wishes and needs. This is borne out in the density estimates displayed in Figure 2, where we see for employees a pronounced spike around standard hours (36-40) for all countries. 13 The hours distribution for the self-employed is mostly 10 Keep in mind that the SHARE sample represents people aged 50 and above; the empirical literature suggests that self-employment increases with age. Also note that the denominator differs between the Tables (employment in Table 1 and labor force in Table 5). 11 These are cross-sectional nonparametric regressions on age. Since the data is very sparse at ages above 75, we used a data-adaptive smoother, software of which is made available by Theo Gasser, Walter Koehler, Alois Kneip and Eva Herrmann, University of Zurich. 12 Given the cross-sectional data, we have no direct way of disentangling these two hypotheses, see note 8. But even if we were to find a lower exit rate of the self-employed, the cause may be differential characteristics leading to different selection effects out of the labor force for self-employed versus wage employed (unobserved heterogeneity) instead of differences in employment hazards. 13 These estimates are substantially smoothed in the sense that the raw data reveal lots more spikes at certain, even numbers of hours, say 15, 30, 35, 45, etc. Hours worked here is the sum of hours worked in the main 9

11 bell-shaped and much less peaked, with mean, median, and variance being much larger than for employees in all of the countries. Some countries display substantial bimodality for the self-employed, with a smaller mode at lower hours. Figure 2 about here Further evidence on retirement-relevant flexibility is provided by answers to a question that asks retirees whether or not their pre-retirement job allowed offered them opportunities to work full- or part-time after the official retirement age. This is answered affirmatively by two thirds of all previously self-employed and by one third of previously wage employed men in the sample. Notwithstanding inter-country differences in levels, the self-employed indicate higher flexibility in every country in the sample. Pronounced differences also exist in terms of job attachment before retirement. Conditional on being retired, respondents were asked to report how many years they had been working on their previous job. This distribution is plotted in Figure 3, by country. While there are difference in the particular densities across countries, generally the selfemployed are much more likely to have longer job tenures than employees. Across all countries, the median tenure of a previously self-employed man amounts to 35 years, that of a previous male employee to Only a small part of that difference will have to do with the self-employed retiring at later ages, since the median age of a retired, previously self-employed person is 69 years, compared to 67 of a previous wage earner. Alternatively, someone self-employed and terminating his business before starting a new venture may not see himself as changing jobs, whereas someone employed may define a change in jobs to include a change in tasks. While such differences are possible, it is conceivable that the self-employed simply want to retire later. We shall return to this issue below in Section 4. Figure 3 about here The survey does not elicit directly the date or year of retirement but does contain information on the year that a pension was received for the first time. The questionnaire allows for a number of different pension incomes to be considered, and we choose the minimum of all indicated years. From here, we can tabulate average ages in Table 6. The Table shows that the self-employed are older when they draw their first pension, in all countries. The differences with employees can amount to several years in some countries, for instance, Denmark, Spain, or the Netherlands. In most of the countries, the difference is statistically different from zero. While there may be a difference between retiring from job and possibly a secondary job. Reported hours exceeding 140 were set to missing. Note that the sample is truncated from above at age The sample is again restricted to males of ages

12 the labor force and drawing a pension, the numbers are consistent with a lower exit rate for the self-employed. Table 6 about here In this context, note that the self-employed are on average of the same age as wage employees, suggesting no difference in life expectancy. The average age of those that currently are or previously have been self-employed (64.5) is only slightly larger than the average age of (current or previous) employees (64.0), see Table The self-employed do feel healthier, though. On a self-reported health score, ranging from 1 to 10, with lowest numbers indicating best health, only 26% of employees reported a health score of 4 or lower, compared with 36% of (currently or previously) self-employed. 16,17 Table 7 about here Finally, Table 8 presents incidence of bridge jobs (in a wider sense), according to a range of possible definitions. We simply mean by this paid activities that are suitable to facilitate gradual withdrawal from the labor force. The first column simply counts those as bridge job holders that have more than one job at the same time. In the male sample of age 50-75, between 1 (Spain) and 20 percent (Switzerland) of respondents can be classified as bridge job holders. Across all countries, 48% of these are self-employed. Numbers of similar overall magnitude are found with conceptually different, but correlated measures. Column two reports on those that declare to be retired and yet working, column three counts those as bridge job holders that draw a pension while working. Column four considers bridge job holders as those that are either retired or draw a pension and work for pay. Column five considers those that not only work and draw a pension at the same time, but whose current job did not start earlier than one year before drawing the first pension. This latter definition is our preferred one as it controlls for the onset of the current job. 15 By current and previous we mean the following: current job status applies to those that are working at the time of the interview, previous job status applies to those that are not working at that time. Previous, however, only refers to the last job held before employment stopped. We cannot control for the entire labor market history of respondents. 16 Respondents have been asked to indicate on a subjective five-point scale how they would classify their health. The question has been asked twice (before and after a list of health-related questions), and we calculate the sum over both responses. Note that different labels were attached to the five scales, according to two randomized groups. E.g., the lowest category would correspond to either excellent or very good. We ignore differences in interpretation for our purposes. 17 One of the potential explanations for these rather large differences may have to be sought in industry differences between the two occupational groups, with associated differences in health risks. These, in turn, may also impact on chosen retirement dates. With the present data, we have no possibility to control for such differences. 11

13 Column six displays self-employment rates among the bridge job holders of column five. With the sole exception of Austria, the self-employment rates are very high and reach up to 85% in case of Italy. These numbers are of similar magnitude as those reported in Table 5 for males above standard retirement age. Table 8 about here We conclude from this that bridge job holders, here defined as working pensioners with a new job, are not a pure US phenomenon. Their numbers are limited, however. Since they have started their jobs relatively recently, they appear to choose self-employment as a mode of employment. Note that we will not be able to control for employment history (including previous self-employment status) of these people due to lack of data. 3.3 Social Security Legislation and Pensions Whereas the preceding tables have documented the large variation across countries in terms of labor market patterns and institutions in general, it is important to know in how far institutional arrangements differ for the self-employed vis-a-vis wage employed. Table 9 gives a short account on coverage of self-employed in social security systems across the countries of interest. The differences between countries are too vast to be detailed in much depth (see for instance, Schoukens (2000) for a more comprehensive survey and European Commission (2001) for further institutional description). Broadly, in most countries the self-employeds social insurance provisions are integrated in a national insurance system that also covers employees. In some countries, the self-employed are fully integrated (such as in Sweden), in others there are special provisions within the national system (such as Germany). A few countries have separate systems for the self-employed. Scandinavian systems are more easily characterized as being universal and compulsory: they tend to be tax-financed and eligibility is assessed by residence; there is typically no distinction between the employed and the self-employed. Similarly for the Netherlands, where social insurances are paid for by premia, and where some special insurances exist for the self-employed (in particular disability). Table 9 about here Some countries differentiate treatment according to industry. In particular agriculture has special provisions. In terms of the main risks covered by social insurance (we disregard sickness and maternity provision in this overview), most countries do also cover the self-employed, at least on an optional basis. An exception is, for instance, Spain, where disability and invalidity insurances are less generous for the self-employed. Germany requires farmers to discontinue their businesses for eligibility for benefits in the categories 12

14 disability or invalidity, old age, and survivor s pensions. Retail business owners have the option of being covered under the German social security system. The largest difference between risks across countries concerns unemployment insurance. Possibly for reasons of moral hazard, unemployment (business termination due to, say, bankruptcy) is not covered for the self-employed, with the exceptions of Sweden, Denmark, and Austria. In Austria, farmers have their own social insurance fund which does not provide for covering unemployment risk. Self-employed in other occupations have the option of joining the general unemployment insurance, however. The Danish unemployment insurance is organized around occupational unemployment funds, which provide the self-employed with the option of joining. Likewise, Swedish self-employed may join the unemployment fund for their industry. Turning to Table 10, working respondents have been asked about their claims to pension incomes in the future. 18 As suggested by the institutional comparison, respondents almost universally expect to have claims against public PAYG pension systems. Italy is the country with fewest affirmative answers, reaching only 64.8% for the self-employed and 81.5% for the wage employed. These low levels are both exceptional and surprising, though. Further, a low incidence of less than 90% (self-employed and wage earners alike) is observed in Austria. Other countries show eligibility rates for public old age pensions of typically %. Table 10 about here Larger variation exist in terms of occupational pensions and early retirement plans. Public early retirement plans are of importance only in Switzerland (6 10%) and, in particular, in Denmark (54-62%). Here, early retirement pensions are linked to membership in an unemployment fund and can be taken up conditional on having contributed for a long qualifying period. The importance of occupational old age pensions varies very strongly across countries and between occupational groups. The highest incidence appears to be in France (both employment types) and Switzerland and Denmark (wage workers). In five of the ten countries the self-employed are less likely to have occupational pension claims than employees. Italy is the country where the self-employed mention occupational pension claims much more often (46%) than wage employed (18%), suggesting that occupational old age pensions serve as substitute for public pensions. The Netherlands is the one coun- 18 We only distinguish public and occupational or private old age and early retirement pensions. These are not available in all countries, or have not been mentioned in all countries. Note that in the Dutch case public old age pension has not been elicited, since every legal resident is eligible. We exclude disability and invalidity pensions from consideration as these will typically be only paid conditional on the uncertain insured event occurring. 13

15 try with widespread coverage of occupational early retirement plans. Here, and in a the few other countries where such pension claims are mentioned, the self-employed are less often covered. 3.4 Institutional Variation and Implications for Self-employment around Retirement We now summarize very roughly in how far different institutions across countries provide differential incentives for the two employment groups. This might help organizing our thoughts on possibly causal effects. Countries that provide particularly strong incentives to retire early are Austria, France, Italy, the Netherlands, and Denmark. Countries where such incentives are mitigated are Sweden and Switzerland. The other countries would fall in between. Along a second dimension, the Netherlands, Italy and Switzerland provide stronger incentives for wage earners to retire as opposed to the self-employed. This has partly to do with more widespread availability of early retirement for wage employees rather than employees. In Austria, incentives may be slightly tilted towards the self-employed, whose old-age pension system is heavily subsidized and includes freelance and other contract workers. Table 11 summarizes the classification. Table 11 about here If we focus on self-employment of the career type that is not chosen for bridging purposes, we can relate observed outcomes y (such as labor force participation) to selfemployment, s, a vector of personal characteristics x, a flexible function in age, φ(a), a set of country dummies, c, and a self-employment/country interaction, s c, by y i = α + x i β + φ(a i ; θ) + s i ς + c j γ + (s i c j )µ + u i (1) where u denotes an error term, i = 1,..., N indexes individuals, and j = 1,..., J indexes countries. The star on y denotes that the actual inclination to retire is not observed, instead only a 0/1 indicator y for actual participation is available. As alternative to φ( ) we can employ country-specific age functions φ j (a i ; θ) and drop the country dummies. The age functions or country dummies then capture the institutional (and possibly cultural) variation across countries for all workers, while the interaction effects capture the particular behavior of the self-employed exposed to country-specific institution effects. The latter may also be replaced with more aggregate dummies for countries of similar institutional design. 14

16 4 Regression Results, SHARE Data This section presents descriptive regression results, controlling for characteristics. We look at the following issues: (a) are the self-employed different from wage earners in terms of individual characteristics such as demographics? (b) Does their labor force participation differ from that of employees, and, if so, are behavioral differences related to institutional differences across countries? (c) Can the inclination to retire later be explained by differences in job characteristics? And finally, (d) do previously self-employed retirees differ in terms of their retirement motives? The estimation sample covers all males, aged 50-75, who are not classified as bridge job holders in the sense that they both work in a new job and draw a pension at the same time. The latter restriction is chosen such as to mitigate possible endogeneity problems when people transit into self-employment with the onset of retirement Older Self-employed Workers in Europe Let us first look at whether the self-employed differ from the wage employed in terms of measured characteristics. Table 12 displays marginal effects from probits of being or having been self-employed (the reference group is employed). For individuals at working age, we consider current employment status, for retired individuals, we consider employment status at the last job. The Table presents first a pooled regression controlling for country dummies, and then lists results from models that were estimated separately per country. Table 12 about here The Table reveals that the self-employed are not easily characterized in terms of demographics when compared to employees. A number of characteristics are significant and important in the pooled regression, but there are hardly any significant effects in the country-specific regressions. In addition, these characteristics do not contribute to explain more than 6% of the model s fit for any country, and sometimes substantially less. One interpretation is that the self-employed do not differ much, on average, in terms of characteristics from wage earners. Thus, the SHARE sample shows a similar degree of heterogeneity (observed characteristics) for the self-employed as do a number of other samples that have been analyzed in the empirical literature. The age variable is entered into regressions as a linear spline with a single node at the country-specific standard retirement age (see Table 3). For the sample as a whole and for 19 The data, despite its focus on retirement-related issues, does not cover measurements of some variables that seem relevant a priori, such as occupation or age at actual labor force withdrawal, or job and employment history other than the most recent job. Likewise, industry is not available in the first release of the SHARE data. 15

17 most of the individual countries, individuals below standard retirement age have a different propensity to be self-employed with age than those above. In only few individual cases the difference is significant, though. For the sample as a whole, the probability to be self-employed decreases with about 0.6% per year. For those above retirement age, the probability increases by about 0.5% per year. Of course, these age patterns will partly reflect cohort and time effects, and it may be so that simply due to sectoral change older and retired people have a higher chance to have been self-employed than younger ones. However, for the working-age group, the average effect is the reverse: it seems as if younger people are more inclined to be self-employed than older ones (note that the estimates do not distinguish whether or not an individual is retired). It is the younger subgroup which dominates the sample. Education is a hard to characterize correlate of self-employment. This is partly due to the fact that educational levels are quite diverse across Europe, and not always defined for all countries. Whereas on average, the highest educated people (level 6, reference group) are most likely to be self-employed and those with lower-intermediate (level 3) education are least likely to be self-employed, this pattern does not hold true at the level of individual countries, where there is no correlation. France is the single exception, and shows a nonmonotonic education pattern. Further, the regression does not suggest that self-employment is the domain of foreignborn respondents, as is found in some of the empirical literature. In the sample as a whole, foreign-born individuals have an almost 8% lower probability to be self-employed than native-born. The picture might change, though, if we could control for industry (agriculture). Lastly, marital status is not correlated with self-employment, safe for occasional significant coefficients in particular countries. The country dummies in the first column roughly reflect the differences in observed or predicted probabilities between the individual countries and Germany (the reference country). In particular, Mediterranean countries have higher self-employment rates. 4.2 Labor Force Participation Table 13 shows estimates of cross-sectional labor force participation conditional on demographics and other variables, as proposed in equation (1) above. Instead of country dummies, however, we let the difference between countries be reflected in the age function, φ j (a; θ), which we model as a country-specific, third degree polynomial in age. The cross-effect is modelled as interacting age with self-employment and an indicator for countries that appear to favor retirement of wage-earning workers, as outlined above (Italy, the 16

18 Netherlands, and Switzerland). Table 13 about here The regression equation is very well determined with a Pseudo-R 2 exceeding 62%. Most of this is due to the flexible age polynomial that provides a good description of crosssectional withdrawal behavior. At any given age, the self-employed are 32% more likely to participate than demographically equivalent wage earners. Labor force inactivity is also strongly dependent on education, with the highest education level showing the largest propensity to work. The education gradient is monotonic. In addition, health status is correlated with labor force participation in a way that is expected: those with worse health are least likely to participate (safe for the long-term sick, whose positive coefficient appears puzzling). People that engage in regular physical activity are more likely to participate, all else equal. The estimated country-specific age polynomials closely track the nonparametric patterns displayed in Figure 1. What is more interesting for our purposes is the coefficient on the interaction term. It shows that in countries whose retirement systems are institutionally (or otherwise practically) favoring the retirement of wage earners, the self-employed are more likely to stay in the labor force. 4.3 Job Characteristics and Retirement Wishes of Working Individuals One possible way of assessing whether or not the self-employed want to retire earlier than employees, conditional on observables and job characteristics, is to consider the question whether or not working respondents would want to retire as early as [they] can from their current job. While this statement does not make explicit possible trade-offs in terms of financial incentives for earlier or later retirement, it is indicative of work ethics or attachment to work, once we control for other job-related characteristics, demographics, and country. Table 14 presents marginal effects from a probit equation. Table 14 about here Being self-employed as such reduces the wish to retire as early as possibly by nine percentage points. This is a very substantial difference, despite us controlling for personal and job characteristics as well as country fixed effects. People that are satisfied with their jobs have a 23 percentage point lower probability to wish to retire early. Further, jobs that are giving a freer choice of how to work, that provide support in difficult situations, that provide recognition of one s efforts and that cater for adequate remuneration are associated with sometimes markedly lower probabilities to wishing to retire as early as possible. Conversely, heavy jobs and poor promotion prospects induce the wish to withdraw early. 17

19 Interestingly, it is unimportant whether the job held offers good or bad job security. These findings are robust to a full interaction of self-employment with all job characteristics. Even though the self-employed show different responses to some of the job characteristics than employees, none of the interaction effects were statistically significant. Despite us not being able to control for industry or exact job descriptions (occupation), these results strongly suggest that work characteristics are an important driving force of the desire to leave into retirement (not controlling for country dummies and personal characteristics reduces the Pseudo-R 2 from 12.4% to 8.7%). But they also suggest that the self-employed are attached to work beyond being in a favorable environment, at least to the extent that the job characteristics as elicited in the survey represent a comprehensive list of possibilities. Table 15 about here Looking at retirement from a life cycle perspective, including measures of wealth and consumption may give important clues, compare Table 15. We can include total net worth and total consumption using an antisymmetric log-type transformation. 20 The main difference is a decrease in sample size from 3,150 observations to 2,000. The marginal effects, compared to the estimates displayed in Table 14, are largely unaffected, however. Log net worth increases the probability of wanting to quit work slightly (marginal effect 0.65%, t value 1.63), while log consumption decreases it (marginal effect 5.2%, t value 3.09). 21 This makes sense: conditional on life time wealth (or permanent income, proxied by consumption), current wealth induces retirement; conditional on current wealth, higher consumption levels put off retirement. This suggests that retirement and consumption decisions are jointly related in preferences: those that want to maintain a high consumption standard may only be able to do so when they can generate additional earnings (wealth) and postpone retirement, all else equal. There is no difference in that respect between the self-employed and employees (interaction effects were essentially zero). Further, we have included hours worked (again, using the log-type transformation of fn. 20), without finding any impact of that variable on whether or not people want to retire early. However, when we also include the interaction between log hours worked and selfemployment status, the interaction term absorbs the impact of self-employment (which in itself becomes positive, albeit not significant (marginal effect 4.8%, t value 0.94). The interaction variable has a marginal effect of 4.3% (at a t value of 3.03). People that are self-employed and work long hours wish to retire later. The effect survives inclusion of log wealth and log consumption. This is consistent with the view that people that 20 specifically, we use ln(x + 1) if x 0 and ln( x + 1) if x < 0 21 In this Table, marginal effects of regressions involving imputed net worth are those corresponding to the first implicate; the associated t values, however, correspond to those using multiple imputation regressions. 18

20 love to work for their own sake select into self-employment, and that they derive very different (marginal) (dis)utility from working than an otherwise observationally equivalent employee. In addition, it is not an attribute of the job itself that makes self-employed want to retire later (as job attributes are controlled for), but it will presumably be an individualspecific effect. Lacking panel data, we cannot control for this directly. 4.4 Retirement Motives We now restrict the sample to those that are retired and address the question whether the formerly self-employed give a different reason from former employees for retirement. The SHARE questionnaire probed 10 explicit motives and one catch-all category other. Most people give exactly one reason for retirement, and some give none (including not responding other ). The options considered are: retirement due to eligibility for public old-age pension;... for occupational pension;... for private pension;... for early retirement; pre-retirement because of having been made redundant; retirement because of own bad health;... a relative s bad health; wish to retire jointly with spouse;... to spend more time with family;... to enjoy life; other reasons. Table 16 shows marginal effects of probit models with largely the same covariates as in Table Note, that we exclude early retirement and pre-retirement (retirement because of having been made redundant) a priori from consideration. Table 16 about here The self-employed retire for different reasons. They are less likely, it appears, to retire because they got eligible for a public or an occupational pension, but they are more likely to retire in order to enjoy life or to retire jointly with their spouses. In addition, they are more likely to retire for other reasons than those mentioned explicitly. Note, that many of the personal characteristics do not contribute much to explaining the regression fit, perhaps owing to much of retirement transitions being due to institutional constraints rather than personal circumstances and preferences. This is reflected in the strong contribution of the country dummies, that by and large show the strongest marginal effects. For instance, placing a person with average characteristics from Germany to Denmark would decrease his probability of retiring for eligibility of public pension schemes by 40%. The main exception to the insignificance of personal characteristics is education in a number of the estimated equations. Some of that effect will be due to a rather small number of highly educated people that determine the estimated coefficients. In addition, bad 22 We have also considered multinomial models that allow capturing simultaneously choosing different motives; however, due to the large number of motives and the small amounts of observations in some of the multiple-answer cells, we dropped this effort. 19

21 health is strongly positively correlated with retiring because of bad health, as should be expected. 5 Conclusions We have analyzed data from the new pan-european SHARE survey that samples the population of residents aged 50 and above in ten different countries. While the cross-sectional nature of the data does not allow tracking transitions over time, the institutional differences between the various countries in terms of incentives for labor force participation behavior at the end of the working life cycle are large and important. Social security and old-age pension systems differ not only across countries, however, but also within countries for the wage employed and the self-employed. We find that self-employed men are more likely to participate at any given age level than their wage employed counterparts. Much of the behavioral variation in the SHARE sample can be explained by country-specific age patterns that reflect institutional differences between countries. We also find that self-employed in countries that give stronger retirement incentives for wage workers have a distinctly different age profile compared to the wage employed majority, even conditional on other observables. The self-employed work longer than employees, both in terms of weekly hours and in terms of total years. Our explorations suggest that some kind of a work ethic, or otherwise strong attachment to work and business is at the root of the phenomenon. Controlling for both positively and negatively charged characteristics of the current job is important when trying to explain whether or not people want to retire from their current job as early as possible. Likewise, wealth and consumption are important determinants: those with higher wealth want to retire earlier, those with higher consumption later, conforming with intuition gleaned from simple life cycle models. Yet, the self-employed continue to be wanting to retire later, all other aspects (including personal characteristics such as health), controlled for. This finding is in line with Hamilton s (2000) interpretation of earnings differences between the two groups: the self-employed do not necessarily earn more, and face substantially higher risks. Their compensation will therefore be likely in terms of unmeasured, non-material fringe benefits. Our analysis suggests, though, that simple indicators of satisfaction with one s job are not sufficient to explain the differential. Summarizing, it appears that retirement behavior of the self-employed responds to some degree to institutional incentives, even though work ethics may reduce the overall labor supply elasticity. Since we have excluded bridge job holders, defined as people that simultaneously draw a pension and work in a new job, from the sample, the direction of causality may arguably run from certain types of people choosing career self-employment 20

22 as their main occupation and then retiring later than comparable wage earners both due to institutional incentives and due to work ethics. A possible implication for policy, if it wants to increase participation behavior among older people, is not to overemphasize self-employment as an employment mode late in life. Future data releases may prove useful in offering additional margins along which the analysis can be refined. In particular, industry codings will be helpful; not only do we expect farmers to be different from retailers, but previous work on self-employment has also shown the usefulness of industry information to assess required starting capital of businesses-to-be. This, jointly with repeated observations in a panel, may help addressing transitions into self-employment at the advanced stage of the working life cycle. Further understanding retirement behavior of the self-employed may also be obtained if actual age at the point of retirement were addressed in the survey, and if the questionnaire explored whether individuals see retirement as a process rather than a one-off transition into an absorbing state. References Berkovec, James, and Steven Stern (1991): Job Exit Behavior of Older Men, Econometrica, 59, Blanchflower, David G. (2000): Self-Employment in OECD Countries, Labour Economics, 7, Blau, David M. (1994): Labor Force Dynamics of Older Men, Econometrica, 62, Blöndal, Sveinbjörn, and Stefano Scarpetta (1999): The Retirement Decision in OECD Countries, OECD Economics Department Working Paper #202. Bruce, Donald, Douglas Holtz-Eakin, and Joseph Quinn (2000): Self-employment and Labor Market Transitions at Older Ages, University of Tennessee, mimeo. Carrasco, Raquel and Mette Ejrnæs (2003): Self-employment in Denmark and Spain: Institutions, Economic Conditions, and Gender Differences, Universidad Carlos III de Madrid, mimeo. Chan, Sewan and Ann Huff-Stevens (2001): Job Loss and Employment Patterns of Older Workers, Journal of Labor Economics, 19, Duval, Romain (2003): Retirement Behavior in OECD Countries: Impact of Old-age Pension Schemes and Other Social Transfer Programs, OECD Economic Studies, 37, European Commission (2001): Mutual Information System on Social Protection in the EU Member States and the EEA (MISSOC). Annex 2: Social Protection of the Selfemployed, Brussels: European Commission. 21

23 Euwals, Rob, Daniel van Vuuren, and Ronald Wolthoff (2005): Early Retirement Behaviour in the Netherlands: Evidence from a Policy Reform, CPB The Hague, mimeo. Fuchs, Victor (1982): Self employment and Labor Force Participation of Older Males, Journal of Human Resources, 17, Gruber, Jonathan, and David Wise (1998): Social Security and Retirement: An International Comparison, American Economic Review, Papers and Proceedings, 88(2), Gruber, Jonathan, and David Wise (2004): Introduction and Summary, in Jonathan Gruber and David A. Wise, eds, Social Security Programs and Retirement around the World: Micro Estimation. Chicago: University of Chicago Press, pp Gustman, Alan L., and Thomas L. Steinmeier (1984): Partial Retirement and the Analysis of Retirement Behvior, Industrial and Labor Relations Review, 37, Hamilton, B. H. (2000): Does Entrepreneurship Pay? An Empirical Analysis of the Return to Self-employment, Journal of Political Economy, 108, Honig, Marjorie and Giora Hanoch (1985): Partial Retirement as a Separate Mode of Retirement Behavior, Journal of Human Resources, 20, Le, A. T., (1999): Empirical Studies of Self employment, Journal of Economic Surveys, 13, OECD (2000): Reforms for an Ageing Society. Paris: OECD. OECD (2004): Employment Outlook. Paris: OECD. Parker, Simon C. (2004a): The Economics of Self-employment and Entrepreneurship. Cambridge, UK: Cambridge University Press. Parker, Simon (2004b): The Retirement Behaviour of the Self employed in Britain, University of Durham, working paper. Peracchi, Franco, and Finis Welch (1994): Trends in Labor Force Transitions of Older Men and Women, Journal of Labor Economics, 12, Quinn, Joseph F. (1980): Labor-force participation patterns of older self-employed workers, Social Security Bulletin, 43(4), Ruhm, Christopher J. (1990): Bridge Jobs and Partial Retirement, Journal of Labor Economics, 8, Schoukens, Paul (2000): Comparison of the Social Security Law for Self-employed Persons in the Member States of the European Union, in Danny Pieters (ed.), Changing Work Patterns and Social Security. EISS Yearbook London: Kluwer Law International, Schuetze, Herbert J. (2000): Taxes, economic conditions and recent trends in self-employment: A Canada-U.S. comparison, Labor Economics, 7,

24 Tables General Note: see text, page 5 for country code definitions. Table 1: Self-employment Rates Across Europe (Men and Women) all sectors non-agricultural country AT CH a n.a. n.a. n.a. n.a. DE a a DK ES n.a FR b 6.8 GR n.a n.a IT NL SE n.a n.a Source: OECD, SourceOECD.org, 2005, National Accounts Data. Self-employment as fraction of total employment; a 1991, b Table 2: Unemployment Rates Across Europe All Males Males, 55 to 64 country AT n.a n.a n.a CH DE DK ES FR b 6.0 GR IT NL SE Source: OECD (2004), Tables B and C. a 1991, b

25 Table 3: Standard and Early Retirement Ages By Gender Across Europe Males Females Early Standard Age Standard Age country AT CH DE DK ES FR GR IT NL SE Source: Duval (2003), Table 1. Notes: see source. Table 4: Labor Force Participation and Retirement Incentives LFP LFP ERA RR IT RR IT TFR country M, M, M at age 60 at age 65 AT n.a. CH n.a. DE DK n.a. n.a. n.a. n.a. n.a. ES FR a GR n.a. n.a. n.a. n.a. n.a. IT NL b 80 b SE Sources: OECD Empl. Outlook 2004, Table C, a 2002; Duval (2003), Fig. 1, Figs. 2 and 4, approx. values; Gruber and Wise (2004), approx. values. Notes: b based on VUT ER plans; LFP Labor force participation rate, ERA effective retirement age, RR replacement rate, IT implicit tax in old age pension systems on continued work, TFR tax force to retire (accumulated IT from early retirement age to age

26 Table 5: Labor Market Activity by Age and Gender, SHARE Labor force participation, self-employed unemployed LFP (as % of pop.) (as share of LFP) (as share of LFP) W+M W M M M W+M same, same, W M M M W+M W M country 50-RA 50-RA 50-RA >RA 50-RA pure both 50-RA 50-RA >RA 50-RA 50-RA 50-RA 25 AT CH DE DK ES FR GR IT NL SE Source: SHARE, 1st rel.; M = men; W = women; pure = only self-employed; both = two jobs, one of which in self-employment; RA = standard retirement age, Table 3

27 Table 6: Average Age When First Drawn Some Pension Income, Males, 50+, SHARE country empl self p value AT CH DE DK ES FR GR IT NL SE Source: SHARE (own calculations). Note: p value refers to t test that mean for selfemployed exceeds mean for employees Table 7: Average Age and Health Score, Males, 50+, conditional on having ever worked, SHARE empl self age health score 1/ health score 3/ health score 5/ health score 7/ health score 9/ Source: SHARE (own calculations). Note: health score is the sum of values on two 5-point subjective health status scales, the lowest indicating excellent or very good health, the highest indicating poor or very bad health. 26

28 Table 8: Prevalence of Bridge Jobs, Males, 50-75, conditional on working, SHARE country has > retired pension... pens., work of which: one job & work & work combined & new job selfempl AT CH DE DK ES FR GR IT NL SE self-employment share all Source: SHARE (own calculations). Note: bridge jobs, according to different definitions; new job : start of job not earlier than one year before starting to draw pension. 27

29 Table 9: Social Security for the Self-employed general industry unem- employment disability, old survivor long-term country system specific ploym. injuries invalidity age benefits care AT SSSE AG, RT AG: n.a. yes permanent yes yes; yes other: disability if survivor voluntary only continues business, takes over pension claims CH NI no n.a. voluntary yes; yes; yes; nsc compulsory basic plan voluntary 2nd pillar DE SPNI AG, RT n.a. yes yes; yes; yes; yes RT: voluntary; AG: after business termination DK NI no voluntary FI yes yes; supplem. yes yes only plan: optional ES SSSE AG n.a. AG partial yes yes n.a only FR SSSE AG, CR, n.a. AG industry yes yes nsc RT compulsory; specific; other: opt. AG: unfit for any agr. work GR SSSE AG, RT n.a. yes yes yes yes yes IT SPNI no n.a. yes yes yes yes yes NL NI no n.a. nsc yes yes yes yes (special system for self-empl.) SE NI no voluntary yes yes yes yes./. Sources: European Commission (2001); US Social Security Administration, website. Abbreviations: AG agriculture; CR crafts; FI fishing & navigation; RT retail NI national, compulsory insurance with universal coverage SSSE special system covering self-employed SPNI special provisions for self-employed within national insurance system n.a. risk not covered; nsc risk not separately covered (no special plan)./. no information 28

30 Table 10: Workers Future Pension Claims, by Type, Males, 50+, conditional on having ever worked S public public occup. occup. coun- or old age early old age early try E retire. retire AT E S CH E S DE E S DK E S ES E S FR E S GR E S IT E S NL E a S a SE E S Source: SHARE (own calculations); n.a.: information not available; : no obs.; S: self-employed; E: employee conditional on having mentioned any pension claim; a NL: question not asked because everyone eligible. Table 11: Country Classification of Retirement Incentives overall incentives stronger for strong middle weak employees IT, NL CH self-employed AT SE neither DK, FR DE, ES, GR 29

31 30 Table 12: Correlates of Self-employment, Males, (Probits; Marginal Effects) ========================================================================================================================================= Country All AT DE SE NL ES IT FR DK GR CH N obs Pseudo R log llhood age, if < RA $ ! $ ! ! if >= RA $ ! educ*: none level ! $ level $ $ level $ ! $ level ! level $ $ other foreign born* $ $ ! never married* ! widowed* divc d/separated* ! country:* CH $ AT SE DK NL FR IT $ ES $ GR $ observed Prob predicted prob ========================================================================================================================================= *=effect of change of dummy var. (0->1); $=significant at 1% level;!=significant at 5% level; reference groups: see Table 13.

32 Table 13: Labor Force Participation, Males, ===================================================================== marginal effect t-value add. statistics self-employed* $ Number of obs = 7124 educ*: none $ Wald chi2(49) = level $ Prob > chi2 = level $ Pseudo R2 = level ! Log likelihood = level level obser. prob. = other pred. prob. = foreign born* (at x means) never married* widowed* divc d/separated* long-term sick notes health:* v good good $ *=discrete change of fair $ dummy var. (0->1) poor ! $=significant at 1% level reg. phys. act.* $!=significant at 5% level age1 = age $ age2 = ageˆ2/ $ age3 = ageˆ3/ $ by country AT age age reference groups age SE age ! education: level 6 age ! marital status: couple age ! (married or not) NL age ! health score: excellent age ! age ! ES age $ age $ age $ IT age ! age age FR age age age DK age $ age $ age $ GR age $ age $ age $ CH age ! age ! age ! empl-favoring ! ===================================================================== 31

33 Table 14: Wishes to Retire from Current Job as Early as Possible, Men, 50-75, Working ===================================================================== marginal effect t-value add. statistics self-employed* $ Number of obs = 3150 job character.*: Wald chi2(48) = v satisfied $ Prob > chi2 = with job ! Pseudo R2 = v physically $ Log likelihood = demanding v time $ obser. prob. = pressure pred. prob. = v free choice $ (at x means) how to work v develop new skills v receive notes support v receive ! *=discrete change of recognition ! dummy var. (0->1) v adequate $=significant at 1% level pay !=significant at 5% level v poor job $ advancement ! v poor job security age educ*: none reference groups level level job characteristics: level disagree/disag. strongly level v=agree strongly level education: level 6 other marital status: couple foreign born* (married or not) never married* ! health score: excellent widowed* $ country: DE divc d/separated* ! long-term sick health:* v good good $ fair $ poor ! reg. phys. act.* country:* CH AT $ SE DK NL FR $ IT ! ES $ GR $ ===================================================================== 32

34 Table 15: Wishes to Retire... : Variations on Table 14 ===================================================================== marginal effect t-value add. statistics self-employed* $ Number of obs = 1991 log net worth Pseudo R2 = log consumption $ Log likelihood = other regressors as in previous Table self-employed* $ Number of obs = 3103 log hours worked Pseudo R2 = other regressors as in previous Table Log likelihood = self-employed* Number of obs = 3103 log hours worked Pseudo R2 = x self-empl $ Log likelihood = other regressors as in previous Table self-employed* Number of obs = 1959 log hours worked Pseudo R2 = x self-empl Log likelihood = log priv. net worth ! log consumption $ Notes: see previous Table other regressors as in previous Table ===================================================================== 33

35 34 Table 16: Reasons for Actual Retirement, Men, 50-75, Retired ============================================================================================================================== public occupat. private bad own bad health retire w spend time enjoy pension pension pension health relative spouse w family life other N obs Pseudo R log llhood self-employed* $ ! $ $ $ age $ $ ! ! educ*: none $ $ (excl) $ $ $ level $ $ ! $ $ $ level $ $ $ $ $ level $ $ $ $ $ level $ $ $ $ $ level $ $ $ $ $ other (excl) $ (excl) (excl) $ $ $ foreign born* never married* (excl) (excl) widowed* $ divc d/separated* (excl) (excl) $ long-term sick $ $ health:* v good ! good $ ! fair $ $ $ ! $ poor $ $ ! $ reg. phys. act.* country:* CH ! $ ! $ AT $ $ $ (excl) $ (excl) SE ! ! DK ! $ $ $ (excl) NL ! $ $ ! $ FR $ $ IT $ ! $ (excl) ES $ $ (excl) $ (excl) (excl) GR $ $ $ $ $ (excl) ============================================================================================================================== *=effect of change of dummy var. (0->1); $=significant at 1% level;!=significant at 5% level; reference groups: see Table 13.

36 Figures Figure 1: Labor Force Participation and Self-employment, Men,

37 Figure 2: Distribution of Weekly Hours Worked, if Participating, Men, Density of act wkly hrs Density of act wkly hrs act wkly hrs Austria act wkly hrs Switzerland Density of act wkly hrs Density of act wkly hrs act wkly hrs Germany act wkly hrs Denmark Density of act wkly hrs Density of act wkly hrs act wkly hrs Spain act wkly hrs France Density of act wkly hrs Density of act wkly hrs act wkly hrs Greece act wkly hrs Italy Density of act wkly hrs Density of act wkly hrs act wkly hrs The Netherlands act wkly hrs Sweden 36

38 Figure 3: Distribution of Last Job s Tenure (Years), Retired, Men Density Density years working in last job Austria years working in last job Switzerland Density Density years working in last job Germany years working in last job Denmark Density Density years working in last job Spain years working in last job France Density Density 8.7e years working in last job Greece years working in last job Italy Density Density years working in last job The Netherlands years working in last job Sweden 37