Health and Work of the Elderly: Subjective Health Measures, Reporting Errors and the Endogenous Relationship Between Health and Work
In empirical studies of retirement decisions of the elderly, health is often found to have a large, if not dominant, effect. Depending on which health measures are used, these estimated effects may be biased estimates of the causal effect of health on the dependent variable(s).Research indicates that subjective, self-assessed health measures may be affected by endogenous reporting behaviour and even if an objective health measure is used, it is not likely to be strictly exogenous to labour market status or labour income. Health and labour market variables will be correlated because of unobserved individual-specific characteristics (e.g., investments in human capital and health capital). Moreover, one's labour market status may be expected to have a (reverse) causal effect on current and future health. In this paper we analyse the relative importance of these endogeneity and measurement issues in the context of a model of early retirement decisions. We state assumptions under which we can use relatively simple methods to assess the relative importance of state dependent reporting errors in individual responses to health questions. The estimation results indicate that among respondents receiving disability insurance allowance, reporting errors are large and systematic and that therefore using these measures in retirement models may seriously bias the parameter estimates and the conclusions drawn from these. We furthermore found that health deteriorates with work and that the two variables are endogenously related.
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- Gloria J. Bazzoli, 1985. "The Early Retirement Decision: New Empirical Evidence on the Influence of Health," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 214-234.
- Richard V. Burkhauser, 1979. "The Pension Acceptance Decision of Older Workers," Journal of Human Resources, University of Wisconsin Press, vol. 14(1), pages 63-75.
- John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
- Marcel Kerkhofs & Maarten Lindeboom, 1997. "Age related health dynamics and changes in labour market status," Health Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 407-423.
- Steven Stern, 1989. "Measuring the Effect of Disability on Labor Force Participation," Journal of Human Resources, University of Wisconsin Press, vol. 24(3), pages 361-395.
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