Health and Retirement Decisions: An Update of the Literature

ENEPRI Research Reports are designed to bring the results of research projects undertaken within the framework of the European Network of Economic Policy Research Institutes (ENEPRI) to public attention. Prepared as part of the ENEPRI projects on Ageing Health and Retirement in the EU (AGIR) and the Research Training Network on Health, Ageing and Retirement (REVISER) this paper examines the relationship between the labour market and the health of senior citizens. Extracting information from major studies conducted in both America and Europe, the paper written by Matthias Deschryvere includes data from recently published literature and analyses the major developments in micro-modelling issues.

This report entitled “Health and Retirement Decisions: An Update of the Literature” surveys the relation between the labour supply and the health of the elderly, based on major studies conducted earlier and new literature. Most of the empirical literature on the topic is drawn from American data, although new European datasets have enabled analysis in several EU countries. The paper complements previous surveys in that it includes recent European results and overviews most of the latest developments in micro-modelling issues. The quest for unbiased estimates of the effect of health on retirement is characterised by several challenges. One important challenge is the endogenous character of the relationship between health and retirement. A second challenge concerns the reporting bias to which certain health measures may be prone. The empirical literature surveyed suggests that poor health reduces the capacity to work and has a substantial impact on labour force participation. The exact magnitude, however, is sensitive to both the choice of health measures and the identification assumptions. For that reason a comparison of health effects between different studies is difficult. Nevertheless, what has been proven is that the old assumption that objective health measures are superior to subjective health measures needs to be applied with caution.

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