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Retirement, financial incentives and health

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  • Kerkhofs, Marcel

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Lindeboom, Maarten
  • Theeuwes, Jules

Abstract

This paper aims to assess empirically the relative size of incentive effects and health for the retirement decision. We specify and estimate a dynamic model for retirement behaviour that explicitly takes account of eligibility conditions and replacement rates of alternative exit routes from the labour force, and health. A range of health instruments are constructed from estimates of a model for health dynamics and these are used to assess the effect of reporting errors and of endogeneity of health on the estimates of the retirement model. Our results provide evidence that health and retirement are endogenously related. Health matters but the size of the health effect depends crucially on the health measure used. We find that subjective health measures overstate the effect of health on retirement and that endogeneity of health suppresses the health effect. Incentive effects are relatively insensitive to alternative specifications for health. The incentive effects are strong for Early Retirement schemes. There is evidence that income streams in alternative exit routes are compared in the retirement decision and that alternative exit routes act as substitutes.

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File URL: ftp://zappa.ubvu.vu.nl/19980042.pdf
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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0042.

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Date of creation: 1998
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Handle: RePEc:dgr:vuarem:1998-42

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Web page: http://www.feweb.vu.nl

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  1. Arie Kapteyn & Klaas de Vos, 1999. "Social Security and Retirement in the Netherlands," NBER Chapters, in: Social Security and Retirement around the World, pages 269-303 National Bureau of Economic Research, Inc.
  2. John Bound & Michael Schoenbaum & Todd R. Stinebrickner & Timothy Waidmann, 1998. "The Dynamic Effects of Health on the Labor Force Transitions of Older Workers," NBER Working Papers 6777, National Bureau of Economic Research, Inc.
  3. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
  4. Gloria J. Bazzoli, 1985. "The Early Retirement Decision: New Empirical Evidence on the Influence of Health," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 214-234.
  5. Daula, Thomas & Moffitt, Robert, 1995. "Estimating Dynamic Models of Quit Behavior: The Case of Military Reenlistment," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 499-523, July.
  6. Kathryn H. Anderson & Richard V. Burkhauser, 1985. "The Retirement-Health Nexus: A New Measure of an Old Puzzle," Journal of Human Resources, University of Wisconsin Press, vol. 20(3), pages 315-330.
  7. Richard V. Burkhauser, 1979. "The Pension Acceptance Decision of Older Workers," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 63-75.
  8. Marcel Kerkhofs & Maarten Lindeboom, 1997. "Age related health dynamics and changes in labour market status," Health Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 407-423.
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