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Health, Financial Incentives, and Early Retirement: Microsimulation Evidence for Germany

In: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement


  • Hendrik Jürges
  • Lars Thiel
  • Tabea Bucher-Koenen
  • Johannes Rausch
  • Morten Schuth
  • Axel Börsch-Supan


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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  • Hendrik Jürges & Lars Thiel & Tabea Bucher-Koenen & Johannes Rausch & Morten Schuth & Axel Börsch-Supan, 2014. "Health, Financial Incentives, and Early Retirement: Microsimulation Evidence for Germany," NBER Chapters,in: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, pages 285-330 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13328

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    References listed on IDEAS

    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;European Society for Population Economics, vol. 12(3), pages 363-389.
    2. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, January.
    3. Christian Dustmann, 2004. "Parental background, secondary school track choice, and wages," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 209-230, April.
    4. repec:eee:joecag:v:9:y:2017:i:c:p:172-184 is not listed on IDEAS
    5. Little, Roderick J A, 1988. "Missing-Data Adjustments in Large Surveys," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 287-296, July.
    6. 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, January.
    7. Poterba, James M. & Venti, Steven F. & Wise, David A., 2017. "The asset cost of poor health," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 172-184.
    8. 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, vol. 12(4), pages 371-394, November.
    9. Laura Romeu Gordo, 2006. "Effects of short- and long-term unemployment on health satisfaction: evidence from German data," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2335-2350.
    10. Kemptner, Daniel & Jürges, Hendrik & Reinhold, Steffen, 2011. "Changes in compulsory schooling and the causal effect of education on health: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 30(2), pages 340-354, March.
    11. 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, vol. 127(1), pages 139-169.
    12. Hendrik Jürges, 2009. "Healthy Minds In Healthy Bodies: An International Comparison Of Education-Related Inequality In Physical Health Among Older Adults," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(3), pages 296-320, July.
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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies


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