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Option Value of Work, Health Status, and Retirement Decisions: New evidence from the Japanese Study on Aging and Retirement (JSTAR)

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  • SHIMIZUTANI Satoshi
  • FUJII Mayu
  • OSHIO Takashi

Abstract

This study examines retirement decisions in Japan, using the option value (OV) model proposed by Stock and Wise (1990) and examined by subsequent studies. This model assumes that individuals maximize a weighted average of utility from their labor income until retirement as well as that from their pension income afterward and determine the timing of retirement based on the OV of postponing it. Using micro-level data collected from the Japanese Study on Aging and Retirement (JSTAR), we computed the OV for each individual working in 2007 and examined its association with the retirement decisions made in 2009. We found that the probability of retirement correlates negatively with the OV and that healthier individuals are somewhat more sensitive to the OV. Furthermore, our simulations show that more generous parameters vis-à-vis eligibility for disability pension benefits slightly increase the probability of retirement, while reduced pension benefits have no significant impact.

Suggested Citation

  • SHIMIZUTANI Satoshi & FUJII Mayu & OSHIO Takashi, 2012. "Option Value of Work, Health Status, and Retirement Decisions: New evidence from the Japanese Study on Aging and Retirement (JSTAR)," Discussion papers 12050, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:12050
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    References listed on IDEAS

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    1. Shimizutani, Satoshi & 清水谷, 諭 & シミズタニ, サトシ & Oshio, Takashi & 小塩, 隆士 & オシオ, タカシ, 2009. "New Evidence on Initial Transition from Career Job to Retirement in Japan," PIE/CIS Discussion Paper 430, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    2. Jonathan Gruber & David A. Wise, 2010. "Social Security Programs and Retirement around the World: The Relationship to Youth Employment," NBER Books, National Bureau of Economic Research, Inc, number grub08-1, May.
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    4. Satoshi Shimizutani & Izumi Yokoyama, 2009. "Has Japan's Long-Term Employment Practice Survived? Developments since the 1990S," ILR Review, Cornell University, ILR School, vol. 62(3), pages 313-326, April.
    5. Takashi Oshio & Satoshi Shimizutani & Akiko Sato Oishi, 2010. "Does Social Security Induce Withdrawal of the Old from the Labor Force and Create Jobs for the Young? The Case of Japan," NBER Chapters, in: Social Security Programs and Retirement around the World: The Relationship to Youth Employment, pages 217-241, National Bureau of Economic Research, Inc.
    6. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, May.
    7. Takashi Oshio & Satoshi Shimizutani, 2012. "Disability Pension Program and Labor Force Participation in Japan: An Historical Perspective," NBER Chapters, in: Social Security Programs and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participatio, pages 391-417, National Bureau of Economic Research, Inc.
    8. Satoshi Shimizutani & Takashi Oshio, 2016. "Public Pension Benefits Claiming Behaviour: new Evidence from the Japanese Study on Ageing and Retirement," The Japanese Economic Review, Springer, vol. 67(3), pages 235-256, September.
    9. David A. Wise, 2012. "Social Security Programs and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms," NBER Books, National Bureau of Economic Research, Inc, number wise11-1, May.
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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