A common feature for many OECD countries is a remarkable increase in labour force participation rates of individuals aged 60 and above since the mid-1990s. This is a reversal of a general long run trend towards lower average retirement ages, see e. g. Larsen and Pedersen (2013) and Anxo et al. (2012). In many countries, the increase in labour force participation rates among older workers continued even after the great recession beginning in 2008 – a period in which non-employment rates have increased markedly among younger people (OECD 2014a). Increasing labour force participation rates for older workers is important in the light of the need in most rich OECD countries of adapting to the increasing share of the population being 65 and older until the middle of the century. These demographic prospects are the net outcome of a low level of fertility combined with an increase in longevity. The purpose of this paper is to examine and discuss some of the main factors contributing to explain the recent increase in employment rates for individuals aged 65–69 years. Most policy changes have until recently focussed on making early retirement less attractive, thus contributing along with other factors to explain the increase in labour force participation among people 60–64 years old. As summarized below, policy measures have also been introduced to make it more attractive for the 65–69 years old to stay in the labour force. However, while future changes have been announced in the age of eligibility for old age pension, in the years we analyse here people are eligible from age 65. This creates a setting where preferences and options are more important for the decision to keep on working for this age group than for people aged 60–64 years. Another obvious argument for looking at the 65–69 years old is the fact that the potential for increasing employment is much bigger here due to the fairly low initial level.

One contribution of this paper is to add to the literature on determinants of retirement after the age of eligibility for old age pension. Further, in contrast to most research in this area, we conduct a cross-country comparison of the main factors behind the recent increase in labour force participation. Finally, while most recent research in this area is based on US data, our focus is on three European countries, namely Denmark, Germany and Sweden.

Denmark, Germany and Sweden face the same demographic challenge. However, they also differ in several ways making it relevant to analyse how differences in the national background influences the common outcome, the employment rate among 65–69 years old people. In the terminology of Esping-Andersen (1990) Germany is a continental or conservative type welfare state while Denmark and Sweden belong to the social democratic type of welfare state. Although Denmark and Sweden share a number of similarities, i. e. fairly generous welfare states based on a large public sector, high taxes, mostly universal benefit programs, and high labour force participation for women, they also differ at the same time in a number of respects such as industrial structure, cyclical experience during recent decades and retirement policies. Further, the selected countries differ in a number of other ways that might – directly or indirectly – affect the country specific trend in labour market activity after age 65. For instance, Germany faces a larger demographic challenge than Denmark and Sweden. While the old age dependency ratio is estimated to increase by 30 percentage points in Germany from 2012 to 2050, a much smaller increase is estimated for Denmark and Sweden, namely 10–13 percentage points (OECD 2015). In addition, the net pension replacement rate for the average earner is higher in Denmark (66%) and in Sweden (64%) than in Germany (50%), (OECD 2016). Finally, the average economic growth was about 1 percentage point higher in Sweden than in Denmark and Germany during the period 1996–2013, see Fig. 6 in the Appendix.

OECD (2013) presents some of the factors assumed to explain the strong labour market performance of older workers continuing also during the great recession beginning in 2008. The economic incentives to stay longer in the labour market have become stronger. This is a reflection of many policy changes intending to reduce the implicit tax on continued work at older ages. At the same time each new cohort of older workers are better educated and by available indicators they also appear to be in better health, both potential factors in explaining longer working lives. Another factor is the changing nature of jobs over time, i. e. hard physical work has become much less important due to technological changes and the shift to jobs in the service sector. While these changes have improved the possibilities for older workers to continue in the job, other job related factors like stress and fast changes in technology and job functions might work in the opposite direction.

A number of recent studies focus on explaining the increasing employment trend for older workers. According to Gruber and Wise (1999), a high implicit tax on continued work from a specific age was one of the main explanations of the decline in average retirement ages until a reversal of this trend in the late 1990s in most OECD countries. Maestas and Zizzimopolous (2010) discuss this reversal in older individuals’ labour force participation in relation to several possible explanatory factors: secular changes in the skill composition of the labour force, technological change removing the very physically demanding jobs along with changes in the incentive structure inherent in the social security programs and in employer provided pensions. Friedberg (2007) focuses on the declining labour force participation rate until the mid-1990s, followed by a levelling off and a trend upwards for older workers in more recent years. As potential explanations of this profile, she points to changes in social security program incentives, in employer provided pensions and in health care. Burtless (2013) and Blau and Goodstein (2010), however, attach more importance to increasing educational attainment than to changes in the retirement income system. Higher educational levels tend to increase labour force participation because education increases return to work, and because education might increase task complexity and work autonomy and, thereby, increase the intrinsic value of work (OECD 2013). For instance, using Danish data Larsen (2008) finds that influence on the job and being able to organise own work increases planned retirement age for older men. The emphasis in Cai (2010) is on the positive impact from improved health on continued labour force participation. Hence, much of the available empirical evidence suggests that poor health causes workers to retire earlier (see e. g. Bound 1991; Dwyer and Mitchell 1999; McGarry 2004). Finally, focusing on the U.S., Canada, and the U.K., Schirle (2008) finds that a substantial share of the increase in labour force participation among older married men may be explained by the increase in recent decades in the participation rates of their wives because wives’ leisure time is complementary to the leisure time of their husbands.

Two recent German studies focus on retirement or continued work for the whole age group 60 years and older. Using GSOEP data, Pfarr et al. (2015) find a strong relative increase in labour force participation both in the age group 60–64 and in the 65+ group. The findings by Pfarr et al. (2015) suggest that the whole increase in employment in the 65+ group occurs in the years 2001–2004, i. e. there is no impact per se from the great recession beginning in 2008. In estimations, Pfarr et al. (2015) find that economic incentives seem to play a small role for the choice between retirement or continued work. Tolan (2015) is a brief discussion of the impact from more flexible retirement options. For the 65+ group, Tolan (2015) points to the importance of whether employers have to pay social contributions for workers in this age group. Three other recent contributions by German authors, Wübbeke (2013), Möhring and Bennett (2015) and Bönke et al. (2016) are interesting analyses in the area of early retirement, leaving the labour force before age 65. The focus below is, however, as mentioned on those who continue work beyond age 65.

Using US data, Beehr and Bennett (2015) analyse bridge jobs as an option in the transition to full retirement. US data are also used in Cahill et al. (2015) where the topic is the potential impact from macroeconomic factors on several forms of behaviour around the standard retirement age, i. e. bridge jobs, phased retirement in a present job or un-retirement where a person returns to the labour force after a period as retired.

A number of studies focus on the motivations for continuing work or retiring using qualitative data. Griffin and Hesketh (2008) work with two samples consisting of about 1000 individuals in a pre-retirement sample and about 1000 in a sample of retired people. They find education to be especially important for continuing paid work while gender, health and satisfaction with being retired are of special importance for volunteer work after retirement. Dingemanss and Henkens (2014) focus on subjective well-being in different exit routes from the labour market, relative to staying in work. Furunes et al. (2015) are working with data from qualitative interviews in Norway collected in three waves of individuals 58 years and older. They find non-economic motives and health to be more important for the decision of continuing to work or not, than financial incentives. Fassbender et al. (2016) are using data from a German survey in an analysis with focus on the “meaning of work” in four different dimensions. Attaching positive feelings to those “meanings of work” are predictors of post-retirement work. Besides, self-assessed health is found important for post-retirement work.

While the studies mentioned above focus mainly on supply oriented factors, the demand side of the labour market is also expected to be important. A supply driven behaviour must obviously meet a demand, i. e. employers that keep older workers, even in a setting of a very deep recession. A discussion of the demand aspect can for instance be found in Dalen et al. (2010). However, in line with much of the existing literature on older workers, we concentrate on supply oriented explanations of the recent trends in labour market participation for the age group 65 to 69 years. We focus on the impact from changes in a) retirement policies, b) education, and c) health. We examine these explanations separately for men and women.

In the following, Sect. 3 contains a survey of the types of data and the approach used in the subsequent descriptions and a description of the aggregate development in labour force participation in the three countries. Next, we consider and discuss the importance of changes in retirement policies (Sect. 4), education (Sect. 5), and health (Sect. 6) in each of these countries. In Sect. 7, we conduct regression analyses to examine country differences in the impact of education and health, while controlling for age. Finally, Sect. 8 concludes the paper.

In this section, we first introduce the data sources and method used in this study. Next, we document the trends in older workers’ labour force participation in each of the selected countries.

Policy changes and reforms in the areas of pensions and retirement are expected to have a significant potential impact on the increase in labour force participation rates. Since the turn of the millennium, a number of policy changes have been enacted in this area of relevance for the age group 65–69 years in Denmark, Germany and Sweden. Here, we include a brief survey of the reforms in each of these countries and present existing evidence of their impact on labour force participation among individuals aged 65–69 years.

To illustrate the importance of the educational level for labour force participation, we first show the employment rate⁵ by educational level in 2014 for individuals aged 65 to 69 years in each of the three countries in Fig. 2. As expected, the highest employment rates are found for highly educated individuals – this result applies for both men and women in all three countries. For women, the employment rate increases by educational level in Denmark and Sweden, while in Germany, these rates seem to be more similar across educational levels. We examine country differences in the impact of the educational level on labour force participation in more detail in Sect. 7 below.

Part of the explanation of the increase in the labour force participation rates might thus be that the educational level has increased among the 65–69-year-olds in the three countries. Using SHARE data, we first illustrate the increase in the educational level in this age group. Next, we show results of a shift share analysis to illustrate the extent in which the increasing educational level can explain the increase in the labour force participation rate in each of the three countries.

In all three countries, the average educational level in the age group 65–69 years has increased from 2004 to 2013, see Fig. 3. Looking at Fig. 3 it seems however also that the measurement of education in SHARE differs between the three countries. As a consequence, we can compare by gender in each of the countries and we can compare the composition in 2004 and 2013 for each country. We can however not compare across countries, see e. g. the extreme differences regarding ISCED 0–2 between Sweden and the other two countries. Overall, it seems that the average educational level increases more for women in Denmark and Sweden than in Germany.

The gender difference in Denmark seems to be rather large. However, as a consequence of small sample size in 2004, the results based on SHARE data for Denmark must be interpreted with caution, see also Sect. 2. Therefore, as a supplementary analysis, we have also conducted the shift share analysis based on register data for Denmark. These data enable us to calculate the standardized rate for each year from 2005 to 2013 for men and women respectively, see Fig. 4.

The results in Fig. 4 confirm that the increasing educational level is more important for women than for men in Denmark. Comparing 2004 and 2013, we find that 31% of the increase for Danish women in this period and 18% of the increase for Danish men is explained by an increasing educational level. Comparing these results to the results for Denmark based on SHARE data, these figures seem to be in line with the number for “all” in Table 1. At the same time, these figures suggest that the very large difference between the impact for men and women suggested by the calculations based on SHARE data is a result of the small sample size.

A perfect objective measure of the level of and changes in health over time is not available. Mortality and life expectancy at specific ages are approximations to such an objective measure that can be used in empirical analyses. Self-reported health is a useful subjective indicator. In this section, we compare the level of life expectancy at age 65 in the three countries and how it has developed between 2004 and 2014.

We find for men that life expectancy at age 65 is at about the same level in Denmark and Germany in 2014, while it is higher in Sweden, see Fig. 5. For women, the life expectancy is lowest in Denmark and at the same slightly higher level in Germany and Sweden.

We find the largest increase in life expectancy from 2004 to 2014 in Denmark for both men and women implying that Danish men are catching up with the life expectancy for German men in this period. Similarly, Danish women are approaching the life expectancy of both German and Swedish women. According to European Community Health Indicators, European Commission (2016), the increase in life expectancy is followed by an increase in the number of healthy life years at age 65. In the next section, we examine country differences in the impact from the alternative measure, self-reported health – along with the impact from age and education – on labour force participation by use by probit estimations.

In this section we extend the descriptions above of the development in the most recent decade with results from a number of regression analyses for the three countries using data from wave 5 of SHARE collected in 2013. The dependent variable in the regressions is set at 1 if the individual is in the labour force, 0 otherwise. As explanatory variables in the probit estimations we enter age as a control capturing elements in retirement policies, cf. the discussion above, along with an eventual age gradient in the financial incentive to retire. We further include education and self-assessed health from SHARE. We include all respondents 65–69 years old and all estimations are made separately for men and women.

The age coefficient is found to be negative as expected and highly significant. In Denmark and Germany the age gradient seems to be steeper for men than for women, while in Sweden the gradient by gender is at the same level. Years of education has a significant positive coefficient except for men in Denmark⁶. Finally, as expected, self-assessed health has a significant negative coefficient in all cases with a slightly higher gradient for men then for women.

For all countries and for both men and women, individuals aged 65 years have a significantly higher probability of labour force participation than the reference group of individuals aged 69 years. For Denmark this is also found for the 66 years old. For men in Germany and for both men and women in Sweden we find significant positive coefficients to all ages 65 to 68 years compared with 69 years.

The coefficients for educational levels confirm a prior expectation of higher labour force participation in the group with “high” education compared with the excluded group with “medium” education. The only exception to this pattern is found for men in Sweden. Here we find, however, a significant negative coefficient to “low” education. So, for Sweden, men with “high” and “medium” education have significantly higher participation probabilities, however without any distinction between “medium” and “high” education. For men in Germany and women in Denmark we find another pattern, i. e. both individuals with “low” and “high” education work with higher probability than those in the “medium” group. This could be interpreted as a reflection of “necessity” to work for the “low” educated and “preferences” for work in the “high” education group. An interpretation like this for low income groups in Germany is found in Eschelbach (2011) and Hochfellner (2013). Finally, we find a very clear gradient for women in Sweden, with the “low”educated working with significantly lower probability and the “high” educated working with a significantly higher probability than the medium group.

In recent years a main emphasis in many OECD countries has been on rolling early retirement programs back. This has turned out to be supported by strong positive cohort trends in education and health among new generations of 60–64 years old. Our focus is on the “next” age group, the 65–69 years old. Labour force participation in this age group is highly interesting both in terms of the demographic challenge and in terms of major policy reforms announced or decided upon for this age group in the coming years.

We focus on this age group in Denmark, Germany and Sweden over the most recent decade. These countries have had different cyclical profiles in recent years, they have had different policy ambitions regarding labour market attachment for the 65–69 years old and the structure of their welfare states and labour markets differs. They share, however, to a large extent the same demographic challenge.

We find that labour force participation – which is identical to employment in this age group – has gone up in all three countries. The largest increase in labour force participation has taken place in Sweden following by Germany, while the increase in Denmark is rather small.

In line with previous research, our results suggest that changes in retirement policies, education and health contribute to explain the recent increase in employment rates among individuals aged 65–69 years. However, our results extend what we already know by showing that – although we focus on three rich OECD countries in Europe – the importance of changes in retirement policies and education in particular seem to differ depending on the country in focus.

As mentioned, main emphasis of policy reforms has been to roll back early retirement programs. In all three countries, however, there have been smaller policy changes directed towards the 65–69 years old group to create and strengthen incentives to postpone retirement, most explicitly in Sweden. Financial incentives seem most important in Germany and only of minor importance in Denmark, where policy changes directed towards individuals above the age of 65 appear to have been too small so far to affect retirement behaviour significantly.

Along with financial incentives in the social security system, education and health are two important determinants of labour force participation. In a shift share analysis, we find that about 25% of the increase in labour force participation among the 65–69 years old in Denmark and Sweden is explained by changes in education. This is found to be more important for women than for men in both countries. In Germany, changes in education appear to be less important.

For all three countries and for both men and women, we find increasing life expectancy and increasing number of expected healthy year at age 65. The latter in particular makes it more realistic to expect a significant labour force potential for the 65–69 years old group.

Our descriptions of the trends in important areas expected to influence labour force participation in the age group in focus is followed by a number of regression results relating labour force participation to age, education and health assessed by the respondents in wave 5 of the SHARE survey. Overall, we find the expected significant impact from a negative gradient in age, a positive impact from self-assessed health and a positive gradient in education. Entering single year age dummies and dummy variables for three levels of education we find significant differences by age. We find significantly higher labour force participation at ages 65, 66, 67 and 68 for men in Germany and for men as well as women in Sweden. The coefficients are declining as age 69 is approached but still indicate a significantly higher employment rate until 68 with 69 as the excluded group. This probably reflects the impact from the explicit policy measures directed at postponing retirement especially in Sweden. The educational dummy variables confirm the prior expected impact from “high” education. We find, however, also for two groups, men in Germany and women in Denmark, that both “low” educated and “high” educated work more than the intermediate group. A possible interpretation of this finding is that the “low” educated group to some extent postpone retirement out of financial necessity and the highly educated group continue working out of a preference for the type of work they are doing.

A final concluding point of prospective interest is that the 65–69 years old in the three countries experience labour force participation increasing most steeply in the post-2008 period of the great recession. This is the same surprising experience as found for the younger 60–64 years old group where recent cohorts also show steep increases in average education and health status.