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Structural dynamic model of retirement with latent health indicator

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  • Fedor Iskhakov

Abstract

This paper provides an empirical analysis of substitution between early retirement and disability as two major exit routes from the labour market in Norway. Analysis is based on a dynamic structural model that addresses the interplay between health, institutional constraints and economic incentives of men and women in the later part of their working lives. Unlike most previous research, which has typically used self-reported and indirect measures of disability conditions, in this paper health is modelled as a direct latent indicator of the eligibility to retire through the disability system. The model specifically accounts for the fact that employment may coincide with bad health when employees do not opt for disability in favour of more desirable retirement opportunities in the future. Norwegian register data are used for estimation. The substitution between disability and early retirement exits is investigated by simulating a complete elimination of the latter. The simulation suggests a moderate inflow of the displaced early pensioners into disability combined with partial employment and negligible inflow into the full-time disability. Copyright (C) 2010 The Author(s). The Econometrics Journal (C) 2010 Royal Economic Society

Suggested Citation

  • Fedor Iskhakov, 2010. "Structural dynamic model of retirement with latent health indicator," Econometrics Journal, Royal Economic Society, vol. 13(3), pages 126-161, October.
    • Handle: RePEc:ect:emjrnl:v:13:y:2010:i:3:p:s126-s161
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    Cited by:

    1. Eric French & John Bailey Jones, 2017. "Health, Health Insurance, and Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 383-409, September.
    2. Hugo Benítez-Silva & Eva Cárceles-Poveda & Selçuk Eren, 2011. "Effects of Legal and Unauthorized Immigration on the U.S. Social Security System," Working Papers wp250, University of Michigan, Michigan Retirement Research Center.
    3. Korfhage, Thorben & Fischer-Weckemann, Björn, 2024. "Long-run consequences of informal elderly care and implications of public long-term care insurance," Journal of Health Economics, Elsevier, vol. 96(C).
    4. Zhan Cao & Yizhou Tang, 2021. "The effect of increasing retirement age on consumption in China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(2), pages 136-150, November.
    5. Korfhage, Thorben, 2019. "Long-run consequences of informal elderly care and implications of public long-term care insurance," Ruhr Economic Papers 813, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    6. Hugo Benítez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2011. "The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers," Economics Working Papers 1275, Department of Economics and Business, Universitat Pompeu Fabra.
    7. Blundell, R. & French, E. & Tetlow, G., 2016. "Retirement Incentives and Labor Supply," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 457-566, Elsevier.
    8. Hanel, Barbara, 2012. "The effect of disability pension incentives on early retirement decisions," Labour Economics, Elsevier, vol. 19(4), pages 595-607.
    9. Hugo Benítez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2015. "The Effects of Employment Uncertainty, Unemployment Insurance, and Wealth Shocks on the Retirement Behavior of Older Americans," Working Papers 2015-06, FEDEA.
    10. Sigurd Mølster Galaasen, 2021. "Pension Reform Disabled," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(4), pages 1227-1260, October.
    11. Wu, Tong & Lawell, C.Y. Cynthia Lin & Just, David R. & Zhao, Jiancheng & Fei, Zhangjun & Wei, Qiang, 2022. "Optimal Forest Management for Interdependent Products: A Nested Dynamic Bioeconomic Model and Application to Bamboo," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322164, Agricultural and Applied Economics Association.
    12. Gauthier Lanot, 2017. "Maximum likelihood and economic modeling," IZA World of Labor, Institute of Labor Economics (IZA), pages 326-326, January.

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