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Structural dynamic model of retirement with latent health indicator

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  • Fedor Iskhakov

Abstract

This paper provides an empirical analysis of substitution between early retirement and disability as two major exit routes from the labour market in Norway. Analysis is based on a dynamic structural model that addresses the interplay between health, institutional constraints and economic incentives of men and women in the later part of their working lives. Unlike most previous research, which has typically used self-reported and indirect measures of disability conditions, in this paper health is modelled as a direct latent indicator of the eligibility to retire through the disability system. The model specifically accounts for the fact that employment may coincide with bad health when employees do not opt for disability in favour of more desirable retirement opportunities in the future. Norwegian register data are used for estimation. The substitution between disability and early retirement exits is investigated by simulating a complete elimination of the latter. The simulation suggests a moderate inflow of the displaced early pensioners into disability combined with partial employment and negligible inflow into the full-time disability. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

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Bibliographic Info

Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 13 (2010)
Issue (Month): 3 (October)
Pages: S126-S161

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Handle: RePEc:ect:emjrnl:v:13:y:2010:i:3:p:s126-s161

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Cited by:
  1. Hugo Benétez-Silva & J. Ignacio Garcéa-Pérez & Sergi Jiménez-Martén, 2011. "The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers," Working Papers 564, Barcelona Graduate School of Economics.
  2. Hugo Benítez-Silva & Eva Cárceles-Poveda & Selçuk Eren, 2011. "Effects of Legal and Unauthorized Immigration on the U.S. Social Security System," Working Papers wp250, University of Michigan, Michigan Retirement Research Center.
  3. Barbara Hanel, 2011. "The Effect of Disability Pension Incentives on Early Retirement Decisions," Melbourne Institute Working Paper Series wp2011n05, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Selcuk Eren & Hugo Benitez-Silva & Eva Carceles-Poveda, 2011. "Effects of Legal and Unauthorized Immigration on the US Social Security System," Economics Working Paper Archive wp_689, Levy Economics Institute.

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