Extracts of this paper were presented at the conference "Work Beyond 60: Preparing for the Demographic Shock", 6–7 March 2003 in Vienna organized by The Geneva Association, The Club of Rome, and The Risk Institute. Parts were also presented at the Bertelsmann Foundation conference "Strategien gegen den Fachkräftemangel" in Berlin, 2 July 2002 and at the Bertelsmann Foundation conference "Reformen zur Steigerung der Beschäftigungsfähigkeit älterer Arbeitskräfte" in Berlin, 26 October 2001. The authors would like to thank the participants as well as Jaap van Dam, Thomas Liebig, Fred Henneberger, and Geneviève Reday-Mulvey for their valuable comments and discussions. Alfonso Sousa-Poza would like to thank the Swiss National Science Foundation for financial assistance. The usual disclaimer applies.