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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-�-vis eligibility for disability pension benefits slightly increase the probability of retirement, while reduced pension benefits have no significant impact.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12050.

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Length: 35 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:eti:dpaper:12050

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  1. Shimizutani, Satoshi & Oshio, Takashi, 2012. "Public Pension Benefits Claiming Behavior: New Evidence from the Japanese Study on Aging and Retirement," CIS Discussion paper series 573, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  2. Shimizutani, Satoshi & Oshio, Takashi, 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.
  3. Satoshi Shimizutani, 2013. "Social Security Earnings Test and the Labour Supply of the Elderly: New Evidence from Unique Survey Responses in Japan," The Japanese Economic Review, Japanese Economic Association, vol. 64(3), pages 399-413, 09.
  4. Oshio, Takashi & Sato Oishi, Akiko & Shimizutani, Satoshi, 2008. "Social Security Reforms and Labor Force Participation of the Elderly in Japan," PIE/CIS Discussion Paper 407, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  5. Oshio, Takashi & Shimizutani, Satoshi & Sato Oishi, Akiko, 2008. "Does Social Security Induce Withdrawal of the Old from the Labor Force and Create Jobs for the Young?: The Case of Japan," PIE/CIS Discussion Paper 408, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  6. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1.
  7. Jonathan Gruber & David A. Wise, 2002. "Social Security Programs and Retirement Around the World: Micro Estimation," NBER Working Papers 9407, National Bureau of Economic Research, Inc.
  8. Satoshi Shimizutani & Takashi Oshio, 2008. "The Labor Supply Effect Of Social Security Earnings Test Revisited: New Evidence From Its Elimination And Revival In Japan," Discussion Papers 0822, Graduate School of Economics, Kobe University.
  9. ICHIMURA Hidehiko & SHIMIZUTANI Satoshi & HASHIMOTO Hideki, 2009. "JSTAR First Results 2009 Report," Discussion papers 09047, Research Institute of Economy, Trade and Industry (RIETI).
  10. 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.
  11. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Chapters, in: Explorations in the Economics of Aging, pages 23-69 National Bureau of Economic Research, Inc.
  12. Satoshi Shimizutani & Izumi Yokoyama, 2009. "Japan's Long-Term Employment Practice Survived? Developments Since the 1990s," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 62(3), pages 313-326, April.
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