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Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany

In: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement

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  • Hendrik Jürges
  • Lars Thiel
  • Tabea Bucher-Koenen
  • Johannes Rausch
  • Morten Schuth
  • Axel Börsch-Supan

Abstract

About 20% of German workers retire on disability pensions. Disability pensions provide fairly generous benefits for those who are not already age-eligible for an old-age pension and who are deemed unable to work for health reasons. In this paper, we use two sets of individual survey data to study the role of health and financial incentives in early retirement decisions in Germany, in particular disability benefit uptake. We show that financial incentives to retire do affect sick individuals at least as much as healthy individuals. Based on 25 years of individual survey data and empirical models of retirement behavior, we then simulate changes in the generosity of disability pensions to understand how these changes would affect retirement behavior. Our results show that making the disability benefit award process more stringent without closing other early retirement routes would not greatly increase labor force participation in old age.

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This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13328.

Handle: RePEc:nbr:nberch:13328

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  1. Riphahn, Regina T., 1998. "Income and Employment Effects of Health Shocks - A Test Case for the German Welfare State," IZA Discussion Papers 10, Institute for the Study of Labor (IZA).
  2. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Hendrik Jürges & Kerstin Schneider, 2011. "Why Young Boys Stumble: Early Tracking, Age and Gender Bias in the German School System," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 371-394, November.
  4. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "The Asset Cost of Poor health," NBER Working Papers 16389, National Bureau of Economic Research, Inc.
  5. Kemptner, Daniel & Jürges, Hendrik & Reinhold, Steffen, 2011. "Changes in compulsory schooling and the causal effect of education on health: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 30(2), pages 340-354, March.
  6. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, octubre-d.
  7. Little, Roderick J A, 1988. "Missing-Data Adjustments in Large Surveys," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 287-96, July.
  8. Hendrik Jürges, 2009. "Healthy Minds In Healthy Bodies: An International Comparison Of Education-Related Inequality In Physical Health Among Older Adults," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(3), pages 296-320, 07.
  9. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, octubre-d.
  10. Laura Romeu Gordo, 2006. "Effects of short- and long-term unemployment on health satisfaction: evidence from German data," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2335-2350.
  11. Christian Dustmann, 2004. "Parental background, secondary school track choice, and wages," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 209-230, April.
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