<!-- Start of picture text --> Figure 6: Age/Gender Specific Labor Force Participation Rates in 2005 and 2040<br>Female Male<br>100% 100%<br>baseline - 2005<br>90% 90%<br>80% 80%<br>ages 51-60<br>70% LFPR remain at 70%<br>age 50 level<br>60% - 2040 60% baseline - 2040 &<br>alternative scenario<br>50% 50% for 2040<br>25% LFPR<br>40% baseline - 2040 increase for 40%<br>ages 51-60<br>30% 25% LFPR increase - 2040 30%<br>20% for ages 51-60 - 2005 20%<br>baseline - 2005<br>10% ages 51-60 LFPR remain at 10%<br>age 50 level - 2005<br>0% 0%<br>0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80<br><!-- End of picture text --> For females participation rates are assumed to deviate from the baseline due to changes in early retirement provisions (see main text). Source: ILO Laborsta Economically Active Population Estimates and Projections and authors’ calculations.<sup>16</sup> We assess 5 possible scenarios for changing early retirement behavior and associated labor force participation as shown in Figure 6. Note that the labor force participation patterns here are selected for illustrative purposes, they do not reflect a particular expected behavioral response to a particular pension reform although the magnitude of the changes represented by the various scenarios are feasible if a high consolidated coverage of the pension schemes is assumed. Recall that actual labor force participation behavioral responses associated with a particular pension reform can be estimated in a data rich environment using econometric methods or the tools described in the previous section of this paper could be applied in cases of data constraints. The first scenario assumes that female labor participation patterns change immediately and the new labor force participation rates of women aged 51 to 60 are identical to that of the 50 year-old cohort. The second scenario is the same for women, but we also fix the male labor force participation rates at 2005 levels, and consequently we do not allow male participation rates to fall in this scenario. The third scenario assumes the same time invariant male activity rates at the 2005 level, but in this case female activity patterns do not change. Scenarios 4 and 5 increase the labor force participation rates of women aged 51 to 60 by 25% immediately without and with imposing time invariant male labor force participation rates respectively.

We start by looking at the impact of the reforms on the contribution of each age group to the total level of human capital with and without changes in participation rates. The human capital share of the 51-60 age group is expected to increase even without changes in the pension system rules. Not surprisingly, the share of human capital of the preretirement age groups further increases with additional surges in their labor force participation. Figure 7 illustrates that the human capital share of the age group is 0.6-1.2 percentage point larger over the already steady increase of the baseline represented by the horizontal axis in this view. Later we will see that keeping the activity of men high at current levels has a larger impact on the growth of the total human capital stock as this represents a labor force participation increase compared to the baseline in all the age

> 16 Gender and age group specific activity rate projections are available from the ILO until 2020, beyond that linear convergence assumed to the activity rates of the ILO aggregate category “more developed regions” reaching its level in 2075.

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