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A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform

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  • Laun, Tobias

    ()
    (Department of Economics, Uppsala University)

  • Wallenius, Johanna

    ()
    (Dept. of Economics, Stockholm School of Economics)

Abstract

In this paper we develop a life cycle model of labor supply and retirement to study the interactions between health and the labor supply behavior of older workers, in particular disability insurance and pension claiming. In our framework, individuals choose when to stop working and, given eligibility criteria, when/if to apply for disability and pension benefits. Individuals care about their health and can partially insure against health shocks by investing in health. We use the model to study the labor supply implications of the recent Swedish pension reform. We find that the new pension system creates big incentives for the continued employment of older workers. In particular, the model predicts an increase in the average retirement age of more than two years.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 741.

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Length: 30 pages
Date of creation: 06 Mar 2012
Date of revision:
Publication status: Forthcoming as Laun, Tobias and Johanna Wallenius, 'A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform' in Journal of Public Economics.
Handle: RePEc:hhs:hastef:0741

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Related research

Keywords: life cycle; retirement; pension reform; disability insurance; health;

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  1. Eric French & Jae Song, 2014. "The Effect of Disability Insurance Receipt on Labor Supply," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 291-337, May.
  2. 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.
  3. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  4. Jönsson, Lisa & Palme, Mårten & Svensson, Ingemar, 2010. "Disability Insurance, Population Health and Employment in Sweden," Research Papers in Economics 2010:25, Stockholm University, Department of Economics.
  5. Laun, Tobias, 2012. "Optimal Social Insurance with Endogenous Health," Working Paper Series in Economics and Finance 742, Stockholm School of Economics, revised 28 Apr 2012.
  6. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
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