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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 an individual maximizes a weighted average of utility from labor income until retirement as well as that from pension income afterwards and determines when to retire based on the OV of postponing retirement. 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 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 based on the OV models show that more generous parameters vis-a-vis eligibility for disability pension benefits slightly increases the probability of retirement, while a reduced pension benefit has no significant impact.

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Bibliographic Info

Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series CIS Discussion paper series with number 566.

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Length: 35 p.
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:hit:cisdps:566

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Keywords: retirement; option value model; social security wealth; JSTAR;

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  1. Oshio, Takashi & Sato Oishi, Akiko & Shimizutani, Satoshi, 2008. "Social Security Reforms and Labor Force Participation of the Elderly in Japan," PIE/CIS Discussion Paper, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 407, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  2. SHIMIZUTANI Satoshi & OSHIO Takashi, 2012. "Public Pension Benefits Claiming Behavior: New evidence from the Japanese Study on Aging and Retirement," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 12068, Research Institute of Economy, Trade and Industry (RIETI).
  3. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, October.
  4. 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.
  5. 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.
  6. 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.
  7. Shimizutani, Satoshi, 2009. "Social Security Earnings Test and the Labor Supply of the Elderly: New Evidence from Unique Survey Responses in Japan," PIE/CIS Discussion Paper, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 429, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  8. 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.
  9. 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.
  10. ICHIMURA Hidehiko & SHIMIZUTANI Satoshi & HASHIMOTO Hideki, 2009. "JSTAR First Results 2009 Report," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 09047, Research Institute of Economy, Trade and Industry (RIETI).
  11. Shimizutani, Satoshi & Oshio, Takashi, 2009. "New Evidence on Initial Transition from Career Job to Retirement in Japan," PIE/CIS Discussion Paper, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 430, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  12. 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, October.
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