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Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany

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  • Hendrik Juerges
  • Lars Thiel
  • Tabea Bucher-Koenen
  • Johannes Rausch
  • Morten Schuth
  • Axel Boersch-Supan

Abstract

About 20% of German workers retire on disability pensions. Disability pensions provide fairly generous benefits for those who are not already age-eligible for an old-age pension and who are deemed unable to work for health reasons. In this paper, we use two sets of individual survey data to study the role of health and financial incentives in early retirement decisions in Germany, in particular disability benefit uptake. We show that financial incentives to retire do affect sick individuals at least as much as healthy individuals. Based on 25 years of individual survey data and empirical models of retirement behavior, we then simulate changes in the generosity of disability pensions to understand how these changes would affect retirement behavior. Our results show that making the disability benefit award process more stringent without closing other early retirement routes would not greatly increase labor force participation in old age.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19889.

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Date of creation: Feb 2014
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Publication status: Forthcoming: Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany , Hendrik Jürges, Lars Thiel, Tabea Bucher-Koenen, Johannes Rausch, Morten Schuth, Axel Börsch-Supan. in Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement , Wise. 2014
Handle: RePEc:nbr:nberwo:19889

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References

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  1. Regina T. Riphahn, 1999. "Income and employment effects of health shocks A test case for the German welfare state," Journal of Population Economics, Springer, Springer, vol. 12(3), pages 363-389.
  2. 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.
  3. Kemptner, Daniel & Jürges, Hendrik & Reinhold, Steffen, 2010. "Changes in Compulsory Schooling and the Causal Effect of Education on Health: Evidence from Germany," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 10200, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  4. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  5. Christian Dustmann, 2004. "Parental background, secondary school track choice, and wages," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 209-230, April.
  6. Little, Roderick J A, 1988. "Missing-Data Adjustments in Large Surveys," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 6(3), pages 287-96, July.
  7. Poterba, James M. & Venti, Steven F. & Wise, David A., 2011. "The Asset Cost of Poor Health," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp11-005, Harvard University, John F. Kennedy School of Government.
  8. Laura Romeu Gordo, 2006. "Effects of short- and long-term unemployment on health satisfaction: evidence from German data," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(20), pages 2335-2350.
  9. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1.
  10. Hendrik Jürges, 2007. "Healthy minds in healthy bodies. An international comparison of education-related inequality in physical health among older adults," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 07141, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  11. Hendrik Jürges & Kerstin Schneider, 2011. "Why Young Boys Stumble: Early Tracking, Age and Gender Bias in the German School System," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(4), pages 371-394, November.
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