This paper analyzes the reasons underlying low labor force participation rates (LFPRs) of women and the elderly population in Italy and Germany. The international comparison highlights the effects of different institutional arrangements on labor market outcomes. The study is based on panel microdata, allowing to trace the dynamics of the retirement process at the individual level. The empirical evidence shows that in both Italy and Germany workers tend to retire before reaching the normal retirement age and that female LFPRs are lower in Italy than in Germany, due mainly to lower education level. The data also show that, given the same social and economic characteristics of individuals, the male/female wage differentials are higher in Germany. So lower female LFPRs in Italy apparently do not depend on wage discrimination. Although the education level of the elderly is relatively low in Italy, this is not sufficient to explain the trend towards early retirement that characterizes Italian labor force. The Italian early retirement scheme (pensioni di anzianit`a) seems to provide a stronger incentive to retire than the German pathways to early retirement
