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Social Insurance and Retirement: A Cross-Country Perspective

In this paper we study the role of social insurance, namely old-age pensions, disability insurance and healthcare, in accounting for the differing labor supply patterns of older individuals across OECD countries. To this end, we develop a life cycle model of labor supply and health with heterogeneous agents. The key features of the framework are: (1) people choose when to stop working, and when/if to apply for disability and pension benefits, (2) the awarding of disability insurance benefits is imperfectly correlated with health, and (3) people can partially insure against health shocks by investing in health, the cost of which is dependent on health insurance coverage. We find that the incentives faced by older workers differ hugely across countries. In fact, based solely on differences in social insurance programs, the model predicts even more cross-country variation in the employment rates of people aged 55-64 than we observe in the data.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 744.

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Length: 36 pages
Date of creation: 25 Apr 2013
Date of revision:
Publication status: Forthcoming as Laun, Tobias and Johanna Wallenius, 'Social Insurance and Retirement: A Cross-Country Perspective' in Review of Economic Dynamics, 2016, pages 72-92.
Handle: RePEc:hhs:hastef:0744
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The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

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  1. 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.
  2. Low, Hamish & Meghir, Costas & Pistaferri, Luigi, 2007. "Wage Risk and Employment Risk Over the Life Cycle," CEPR Discussion Papers 6187, C.E.P.R. Discussion Papers.
  3. Assar Lindbeck & Sten Nyberg, 2001. "Raising Children to Work Hard: Altruism, Work Norms and Social Insurance," CESifo Working Paper Series 498, CESifo Group Munich.
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  5. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
  6. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-80, September.
  7. Lee E. Ohanian & Andrea Raffo & Richard Rogerson, 2006. "Long-term changes in labor supply and taxes: evidence from OECD countries, 1956-2004," Research Working Paper RWP 06-16, Federal Reserve Bank of Kansas City.
  8. Courtney C. Coile & Phillip B. Levine, 2006. "Labor Market Shocks and Retirement: Do Government Programs Matter?," NBER Working Papers 12559, National Bureau of Economic Research, Inc.
  9. Richard Rogerson & Johanna Wallenius, 2013. "Nonconvexities, Retirement, and the Elasticity of Labor Supply," American Economic Review, American Economic Association, vol. 103(4), pages 1445-62, June.
  10. Andres Erosa & Luisa Fuster & Gueorgui Kambourov, 2011. "Labor Supply and Government Programs: A Cross-Country Analysis," Working Papers tecipa-442, University of Toronto, Department of Economics.
  11. Lindbeck, Assar, 1995. " Welfare State Disincentives with Endogenous Habits and Norms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 477-94, December.
  12. Johansson, Per & Laun, Lisa & Laun, Tobias, 2013. "Screening stringency in the disability insurance program," Working Paper Series 2013:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  13. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
  14. Berkovec, James & Stern, Steven, 1991. "Job Exit Behavior of Older Men," Econometrica, Econometric Society, vol. 59(1), pages 189-210, January.
  15. Lars Ljungqvist & Thomas J. Sargent, 2007. "Do Taxes Explain European Employment? Indivisible Labor, Human Capital, Lotteries, and Savings," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 181-246 National Bureau of Economic Research, Inc.
  16. Eric French & John Bailey Jones, 2011. "The Effects of Health Insurance and Self‐Insurance on Retirement Behavior," Econometrica, Econometric Society, vol. 79(3), pages 693-732, 05.
  17. Fatih Guvenen & Burhanettin Kuruscu & Serdar Ozkan, 2014. "Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis," Review of Economic Studies, Oxford University Press, vol. 81(2), pages 818-850.
  18. Cara McDaniel, 2011. "Forces Shaping Hours Worked in the OECD, 1960-2004," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 27-52, October.
  19. C Radha Iyengar & Giovanni Mastrobuoni, 2007. "The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring," CeRP Working Papers 70, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  20. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
  21. Wallenius, Johanna, 2013. "Social security and cross-country differences in hours: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2466-2482.
  22. Richard Rogerson, 2007. "Taxation and market work: is Scandinavia an outlier?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 59-85, July.
  23. Jonathan Gruber & Kevin Milligan & David A. Wise, 2009. "Social Security Programs and Retirement Around the World: The Relationship to Youth Employment, Introduction and Summary," NBER Working Papers 14647, National Bureau of Economic Research, Inc.
  24. Courtney Coile & Jonathan Gruber, 2007. "Future Social Security Entitlements and the Retirement Decision," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 234-246, May.
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