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Structural dynamic model of retirement with latent health indicator


  • Fedor Iskhakov


This paper provides an empirical analysis of substitution between early retirement and disability as two major exit routes from the labour market in Norway. Analysis is based on a dynamic structural model that addresses the interplay between health, institutional constraints and economic incentives of men and women in the later part of their working lives. Unlike most previous research, which has typically used self-reported and indirect measures of disability conditions, in this paper health is modelled as a direct latent indicator of the eligibility to retire through the disability system. The model specifically accounts for the fact that employment may coincide with bad health when employees do not opt for disability in favour of more desirable retirement opportunities in the future. Norwegian register data are used for estimation. The substitution between disability and early retirement exits is investigated by simulating a complete elimination of the latter. The simulation suggests a moderate inflow of the displaced early pensioners into disability combined with partial employment and negligible inflow into the full-time disability. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

Suggested Citation

  • Fedor Iskhakov, 2010. "Structural dynamic model of retirement with latent health indicator," Econometrics Journal, Royal Economic Society, vol. 13(3), pages 126-161, October.
  • Handle: RePEc:ect:emjrnl:v:13:y:2010:i:3:p:s126-s161

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    References listed on IDEAS

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    Cited by:

    1. Eric French & John Bailey Jones, 2017. "Health, Health Insurance, and Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 383-409, September.
    2. Hugo Benítez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2011. "The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers," Economics Working Papers 1275, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Hugo Benítez-Silva & Eva Cárceles-Poveda & Selçuk Eren, 2011. "Effects of Legal and Unauthorized Immigration on the U.S. Social Security System," Working Papers wp250, University of Michigan, Michigan Retirement Research Center.
    4. Hanel, Barbara, 2012. "The effect of disability pension incentives on early retirement decisions," Labour Economics, Elsevier, vol. 19(4), pages 595-607.
    5. repec:eee:hapoch:v1_457 is not listed on IDEAS
    6. Gauthier Lanot, 2017. "Maximum likelihood and economic modeling," IZA World of Labor, Institute for the Study of Labor (IZA), pages 326-326, January.

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