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A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform

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In this paper we develop a life cycle model of labor supply and retirement to study the interactions between health and the labor supply behavior of older workers, in particular disability insurance and pension claiming. In our framework, individuals choose when to stop working and, given eligibility criteria, when/if to apply for disability and pension benefits. Individuals care about their health and can partially insure against health shocks by investing in health. We use the model to study the labor supply implications of the recent Swedish pension reform. We find that the new pension system creates big incentives for the continued employment of older workers. In particular, the model predicts an increase in the average retirement age of more than two years.

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  • Laun, Tobias & Wallenius, Johanna, 2012. "A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform," SSE/EFI Working Paper Series in Economics and Finance 741, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0741
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    More about this item

    Keywords

    life cycle; retirement; pension reform; disability insurance; health;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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