Health problems as determinants of retirement: Are self-rated measures endogenous?

Abstract

We explore alternative measures of unobserved health status in order to identify effects of mental and physical capacity for work on older men's retirement. Traditional self-ratings of poor health are tested against more objectively measured instruments. Using the Health and Retirement Study (HRS), we find that health problems influence retirement plans more strongly than do economic variables. Specifically, men in poor overall health expected to retire one to two years earlier, an effect that persists after correcting for potential endogeneity of self-rated health problems. The effects of detailed health problems are also examined in depth.

Health and Retirement Decisions: An Update of the Literature

“…This is in line with results of Dwyer and Mitchell (1999). The author places her results and those of the previous contrasting studies in a historical perspective and explains them by a change in attitude towards early retirement.…”

“…Bound (1991), Dwyer and Mitchell (1999) and McGarry (2004) find that the effects of health variables are substantially stronger than the financial ones. It is, however, important to note that the comparability of the results is mostly reduced because of the difference in samples, statistical methods and dependent variables.…”

“…The inclusion of the random effects reduced the estimated effects of the health measures, although they remain important. Dwyer and Mitchell (1999) explain the expected age of retirement 3 -an unusual dependent variable in the retirement literature 4 -by an array of subjective and objective health measures. Their approach belongs to the category of literature that seeks to circumvent endogeneity problems by instrumenting subjective endogenous health measures by more objective health measures or by other instruments.…”

“I want to break free”. The role of working conditions on retirement expectations and decisions

“…In the literature, there is a concern about the use of self-reported measures, in particular for health, to explain retirement decisions (Bound 1991, Dwyer and Mitchell 1999, Disney et al 2006. The general concern is that the responses to subjective judgements may not be independent of the labour market outcome they are used to explain (Bound 1991) and this can lead to an over estimation of their effect on the outcome of interest.…”

Long-Term and Spillover Effects of Health Shocks on Employment and Income

“…The effectiveness of these measures depends on the extent to which ill-health constrains the earnings capacity and employment opportunities of the 50+ population. Ill-health is frequently reported to be a leading cause of labor market withdrawal in middle-age (Bound et al 1999; Currie and Madrian 1999; Dwyer and Mitchell 1999; French 2005; Disney, Emmerson, and Wakefield 2006). However, the existing evidence base to gauge whether improved population health, or at least reduced disability, alongside improved financial incentives, could increase labor market participation is weak or incomplete in three important respects.…”