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Option Value of Work, Health Status, and Retirement Decisions: New Evidence from the Japanese Study on Aging and Retirement (JSTAR)

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Listed:
  • Shimizutani, Satoshi
  • 清水谷, 諭
  • Fujii, Mayu
  • 藤井, 麻由
  • Oshio, Takashi
  • 小塩, 隆士

Abstract

This study examines retirement decisions in Japan, using the option value (OV) model proposed by Stock and Wise (1990) and examined by subsequent studies. This model assumes that an individual maximizes a weighted average of utility from labor income until retirement as well as that from pension income afterwards and determines when to retire based on the OV of postponing retirement. Using micro-level data collected from the Japanese Study on Aging and Retirement (JSTAR), we computed the OV for each individual working in 2007 and examined its association with retirement decisions made in 2009. We found that the probability of retirement correlates negatively with the OV and that healthier individuals are somewhat more sensitive to the OV. Furthermore, our simulations based on the OV models show that more generous parameters vis-a-vis eligibility for disability pension benefits slightly increases the probability of retirement, while a reduced pension benefit has no significant impact.

Suggested Citation

  • Shimizutani, Satoshi & 清水谷, 諭 & Fujii, Mayu & 藤井, 麻由 & Oshio, Takashi & 小塩, 隆士, 2012. "Option Value of Work, Health Status, and Retirement Decisions: New Evidence from the Japanese Study on Aging and Retirement (JSTAR)," CIS Discussion paper series 566, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:cisdps:566
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    References listed on IDEAS

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    1. Shimizutani, Satoshi & 清水谷, 諭 & シミズタニ, サトシ & Oshio, Takashi & 小塩, 隆士 & オシオ, タカシ, 2009. "New Evidence on Initial Transition from Career Job to Retirement in Japan," PIE/CIS Discussion Paper 430, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    2. Jonathan Gruber & David A. Wise, 2010. "Social Security Programs and Retirement around the World: The Relationship to Youth Employment," NBER Books, National Bureau of Economic Research, Inc, number grub08-1, March.
    3. Satoshi Shimizutani, 2013. "Social Security Earnings Test and the Labour Supply of the Elderly: New Evidence from Unique Survey Responses in Japan," The Japanese Economic Review, Japanese Economic Association, vol. 64(3), pages 399-413, September.
    4. Satoshi Shimizutani & Izumi Yokoyama, 2009. "Has Japan's Long-Term Employment Practice Survived? Developments since the 1990S," ILR Review, Cornell University, ILR School, vol. 62(3), pages 313-326, April.
    5. Takashi Oshio & Satoshi Shimizutani & Akiko Sato Oishi, 2010. "Does Social Security Induce Withdrawal of the Old from the Labor Force and Create Jobs for the Young? The Case of Japan," NBER Chapters, in: Social Security Programs and Retirement around the World: The Relationship to Youth Employment, pages 217-241, National Bureau of Economic Research, Inc.
    6. David A. Wise, 1990. "Issues in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise90-1, March.
    7. Takashi Oshio & Satoshi Shimizutani, 2012. "Disability Pension Program and Labor Force Participation in Japan: An Historical Perspective," NBER Chapters, in: Social Security Programs and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participatio, pages 391-417, National Bureau of Economic Research, Inc.
    8. Satoshi Shimizutani & Takashi Oshio, 2016. "Public Pension Benefits Claiming Behaviour: new Evidence from the Japanese Study on Ageing and Retirement," The Japanese Economic Review, Springer, vol. 67(3), pages 235-256, September.
    9. David A. Wise, 2012. "Social Security Programs and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms," NBER Books, National Bureau of Economic Research, Inc, number wise11-1, March.
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    11. Takashi Oshio & Akiko Sato Oishi & Satoshi Shimizutani, 2011. "Social Security Reforms And Labour Force Participation Of The Elderly In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 62(2), pages 248-271, June.
    12. Shimizutani, Satoshi & 清水谷, 諭 & シミズタニ, サトシ & Oshio,Takashi & 小塩, 隆士 & オシオ, タカシ, 2008. "The Labor Supply Effect of Social Security Earnings Test Revisited: New Evidence from its Elimination and Revival in Japan," PIE/CIS Discussion Paper 410, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    13. ICHIMURA Hidehiko & SHIMIZUTANI Satoshi & HASHIMOTO Hideki, 2009. "JSTAR First Results 2009 Report," Discussion papers 09047, Research Institute of Economy, Trade and Industry (RIETI).
    14. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Chapters, in: Explorations in the Economics of Aging, pages 23-69, National Bureau of Economic Research, Inc.
    15. Takashi Oshio & Akiko Sato Oishi, 2004. "Social Security and Retirement in Japan: An Evaluation Using Micro-Data," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 399-460, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    retirement; option value model; social security wealth; JSTAR;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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