Old-Age Labor Exit Rates and the Impact of Social Security Programs in Iran

Like people in most countries, Iranians today work for shorter employment durations despite having higher life expectancies. To investigate how social security benefits in Iran affect this phenomenon, this study first calculated specific relative exit rates for the 45–49, 50–54, 55–59, 60–64 and 65+ age cohorts from 2002 to 2020. It was shown that exit rates were higher among older age cohorts and, in addition, Iran experienced an increasing time trend in exit rates up to 2011, although this has ended and reversed. The computed exit rates data were then used in a pooled cross-section FGLS regression to explain the effect of pull and push factors. The results show that sanctions, high unemployment rates, and inflation significantly pushed workers out of the labor force. The effects of inflation were non-linear, however, indicating that at extremely high inflation rates of above 22.7% people would in fact need to work longer. Though unemployment insurance is helpful in inducing early retirement, the results show that disability pensions are not used in Iran as a pathway for that purpose. In addition to these push factors that explain the changes in exit rates in Iran, the results show that the pull factors of social security programs have also an important role and explain differences in exit rates observed among age groups and genders. The statutory retirement age stipulations have been institutionalized to become the normal age for inactivity. Nonetheless, generous pension arrangements have also been impactful. The implicit tax on work continuation, estimated at around 2.4 on average, has had a positive impact on exit rates as well.