IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v69y2020icp1032-1055.html
   My bibliography  Save this article

Flexible or mandatory retirement? Welfare implications of retirement policies for a population with heterogeneous health conditions

Author

Listed:
  • Feng, Zhenhua
  • Lien, Jaimie W.
  • Zheng, Jie

Abstract

A flexible retirement policy has often been proposed as a solution to address the social dilemma of individuals in the population having different desired retirement ages. We analyze such a policy in an overlapping generations general equilibrium framework, where individuals differ in terms of their health condition at the standard retirement age, and therefore in their suitability for remaining in the labor force beyond the standard age. In our model, workers know about their future health condition when they are young, and adjust their savings and labor supply accordingly in order to maximize their lifetime utility. The applies to situations in which workers can fairly accurately predict their health status based upon personal, family, community and professional health status tendencies. We compare the flexible retirement policy to the mandatory retirement policy in the labor and capital markets, and the effects on savings and wages in the aggregate for both healthy and unhealthy, young and elderly cohorts. For economies with sufficiently high capital intensity of production and high levels health among the elderly, a flexible retirement policy can result in a welfare reduction compared to a mandatory retirement policy. Our study links the social desirability of the two retirement policies to the technological and population structure of the economy.

Suggested Citation

  • Feng, Zhenhua & Lien, Jaimie W. & Zheng, Jie, 2020. "Flexible or mandatory retirement? Welfare implications of retirement policies for a population with heterogeneous health conditions," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1032-1055.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:1032-1055
    DOI: 10.1016/j.iref.2018.12.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056018310785
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2018.12.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Xiaoya (Sara) Ding & Nicholas S. P. Tay, 2016. "Some Challenges to Economic Growth and Stability in China," Chinese Economy, Taylor & Francis Journals, vol. 49(5), pages 301-306, September.
    2. Liu, Jun & Liu, Taoxiong, 2020. "Two-child policy, gender income and fertility choice in China," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1071-1081.
    3. Simonovits, András, 2003. "Designing optimal linear rules for flexible retirement," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(3), pages 273-293, November.
    4. Kathleen McGarry, 2004. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
    5. Shunfeng Song & George S‐F Chu, 1997. "Social Security Reform In China: The Case Of Old‐Age Insurance," Contemporary Economic Policy, Western Economic Association International, vol. 15(2), pages 85-93, April.
    6. Gu, Danan & Dupre, Matthew E. & Warner, David F. & Zeng, Yi, 2009. "Changing health status and health expectancies among older adults in China: Gender differences from 1992 to 2002," Social Science & Medicine, Elsevier, vol. 68(12), pages 2170-2179, June.
    7. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    8. Dwyer, Debra Sabatini & Mitchell, Olivia S., 1999. "Health problems as determinants of retirement: Are self-rated measures endogenous?," Journal of Health Economics, Elsevier, vol. 18(2), pages 173-193, April.
    9. Gloria J. Bazzoli, 1985. "The Early Retirement Decision: New Empirical Evidence on the Influence of Health," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 214-234.
    10. repec:ran:wpaper:774 is not listed on IDEAS
    11. Wang, Wen & Li, Qiang & Lien, Donald, 2016. "Human capital, political capital, and off-farm occupational choices in rural China," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 412-422.
    12. Aidi Hu, 1997. "Reforming China's social security system: Facts and perspectives," International Social Security Review, John Wiley & Sons, vol. 50(3), pages 45-65, July.
    13. Zhang, Licheng & Wang, Hong, 2008. "Dynamic process of adverse selection: Evidence from a subsidized community-based health insurance in rural China," Social Science & Medicine, Elsevier, vol. 67(7), pages 1173-1182, October.
    14. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    15. Joseph F. Quinn, 1977. "Microeconomic Determinants of Early Retirement: A Cross-Sectional View of White Married Men," Journal of Human Resources, University of Wisconsin Press, vol. 12(3), pages 329-346.
    16. Yu, Mei-Yu & Sarri, Rosemary, 1997. "Women's health status and gender inequality in China," Social Science & Medicine, Elsevier, vol. 45(12), pages 1885-1898, December.
    17. Daniel Vuuren, 2014. "Flexible Retirement," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 573-593, July.
    18. Jaimie W. Lien & Wei Wang & Jie Zheng, 2016. "A Model of Capital Allocation, Education, and Job Choice in China," Chinese Economy, Taylor & Francis Journals, vol. 49(5), pages 307-326, September.
    19. Nordhaus, William D., 1993. "Rolling the 'DICE': an optimal transition path for controlling greenhouse gases," Resource and Energy Economics, Elsevier, vol. 15(1), pages 27-50, March.
    20. Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(3), pages 505-529.
    21. John Giles & Ren Mu, 2007. "Elderly parent health and the migration decisions of adult children: Evidence from rural China," Demography, Springer;Population Association of America (PAA), vol. 44(2), pages 265-288, May.
    22. Strauss, John & Lei, Xiaoyan & Park, Albert & Shen, Yan & Smith, James P. & Yang, Zhe & Zhao, Yaohui, 2010. "Health Outcomes and Socio-Economic Status among the Elderly in China: Evidence from the CHARLS Pilot," IZA Discussion Papers 5152, Institute of Labor Economics (IZA).
    23. Kathryn H. Anderson & Richard V. Burkhauser, 1985. "The Retirement-Health Nexus: A New Measure of an Old Puzzle," Journal of Human Resources, University of Wisconsin Press, vol. 20(3), pages 315-330.
    24. David J. EVANS, 2006. "Social discount rates for the European Union," Departmental Working Papers 2006-20, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Huang, Shaoan & Lien, Jaimie W. & Yang, Siqun & Zheng, Jie, 2024. "Lump-sum tax or flat income tax? Welfare implications of taxation policy in the presence of social comparison," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 20-33.
    2. Na Zhou & Jinkai Zhao & Kai Zhao & Dong Li, 2021. "Analysis on the Sources of China’s Economic Growth From the Perspective of Cleaner Production," SAGE Open, , vol. 11(2), pages 21582440219, April.
    3. Yan Wu & Changsheng Xu & Ming Yi, 2022. "The Optimal Choice of Delayed Retirement Policy in China," Sustainability, MDPI, vol. 14(19), pages 1-21, October.
    4. Jiancai Pi & Xinyi Liu, 2024. "Pollution control and multinational firms," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(1), pages 3-27, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maarten Lindeboom, 2012. "Health and Work of Older Workers," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 3, Edward Elgar Publishing.
    2. Heidler, Matthias & Raffelhüschen, Bernd & Leifels, Arne, 2006. "Heterogenous life expectancy, adverse selection, and retirement behaviour," FZG Discussion Papers 13, University of Freiburg, Research Center for Generational Contracts (FZG).
    3. Michael Insler, 2014. "The Health Consequences of Retirement," Journal of Human Resources, University of Wisconsin Press, vol. 49(1), pages 195-233.
    4. Nabanita Datta Gupta & Mona Larsen, 2010. "The impact of health on individual retirement plans: self‐reported versus diagnostic measures," Health Economics, John Wiley & Sons, Ltd., vol. 19(7), pages 792-813, July.
    5. Subhasree Basu Roy, 2018. "Effect of Health on Retirement of Older Americans: a Competing Risks Study," Journal of Labor Research, Springer, vol. 39(1), pages 56-98, March.
    6. Beni­tez-Silva, Hugo & Ni, Huan, 2008. "Health status and health dynamics in an empirical model of expected longevity," Journal of Health Economics, Elsevier, vol. 27(3), pages 564-584, May.
    7. Dhaval Dave & Inas Rashad & Jasmina Spasojevic, 2006. "The Effects of Retirement on Physical and Mental Health Outcomes," NBER Working Papers 12123, National Bureau of Economic Research, Inc.
    8. Manoj K Pandey, 2009. "Labor Force Participation among Indian Elderly: Does Health Matter?," Working Papers id:1987, eSocialSciences.
    9. Deschryvere, Matthias, 2004. "Health and Retirement. An Update of the Literature," Discussion Papers 932, The Research Institute of the Finnish Economy.
    10. Dhaval Dave & Inas Rashad & Jasmina Spasojevic, 2008. "The Effects of Retirement on Physical and Mental Health Outcomes," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 497-523, August.
    11. Chae, Jiwon & Jang, Bong-Gyu & Park, Seyoung, 2023. "Analytic approach for models of optimal retirement with disability risk," Mathematical Social Sciences, Elsevier, vol. 126(C), pages 68-75.
    12. Bent Jesper Christensen & Malene Kallestrup‐Lamb, 2012. "The Impact Of Health Changes On Labor Supply: Evidence From Merged Data On Individual Objective Medical Diagnosis Codes And Early Retirement Behavior," Health Economics, John Wiley & Sons, Ltd., vol. 21(S1), pages 56-100, June.
    13. Jones, Andrew M. & Rice, Nigel & Roberts, Jennifer, 2010. "Sick of work or too sick to work? Evidence on self-reported health shocks and early retirement from the BHPS," Economic Modelling, Elsevier, vol. 27(4), pages 866-880, July.
    14. Pandey, Manoj K., 2009. "Labor force participation among Indian elderly: does health matter?," MPRA Paper 15394, University Library of Munich, Germany.
    15. J L Ford & K Park & S Sen, 2009. "All Work and No Play: Pecuniary Versus Non-Pecuniary Factors in the Labour Supply of the Elderly," Discussion Papers 09-08, Department of Economics, University of Birmingham.
    16. Manoj K. Pandey, 2009. "Labor Force Participation among Indian Elderly: Does Health Matter?," ASARC Working Papers 2009-11, The Australian National University, Australia South Asia Research Centre.
    17. Larsen, Mona & Datta Gupta, Nabanita, 2004. "The Impact of Health on Individual Retirement Plans: a Panel Analysis comparing Selfreported versus Diagnostic Measures," Working Papers 04-7, University of Aarhus, Aarhus School of Business, Department of Economics.
    18. Courtney C. Coile, 2015. "Economic Determinants Of Workers’ Retirement Decisions," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 830-853, September.
    19. Kerry McGeary, 2009. "How do health shocks influence retirement decisions?," Review of Economics of the Household, Springer, vol. 7(3), pages 307-321, September.
    20. repec:eee:labchp:v:1:y:1986:i:c:p:305-355 is not listed on IDEAS
    21. Ronald Hagan & Andrew M. Jones & Nigel Rice, 2009. "Health and Retirement in Europe," IJERPH, MDPI, vol. 6(10), pages 1-20, October.

    More about this item

    Keywords

    Retirement policy; Welfare economics; Overlapping generations; Demographic trends; Health;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • I1 - Health, Education, and Welfare - - Health
    • J1 - Labor and Demographic Economics - - Demographic Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:1032-1055. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.