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Aggregate Health Shock and Retirement Decision

Author

Listed:
  • Hyunduk Suh

    (Inha University)

  • SeEun Jung

    (Inha University)

Abstract

The retirement of old workers increased during the COVID-19 pandemic, and health concerns are considered as a critical factor. To isolate the effect of pure health concerns during the pandemic, we analyze the impact of the aggregate health shock on retirement decisions using a life-cycle model. The aggregate health shock changes the economy from the normal state to the pandemic state, where the probability of adverse idiosyncratic health shock increases, especially if agents are working. Simulation results suggest that the shock accelerates the retirement of agents aged between 60 and 64. Its impact is quantitatively greater than the effect of a five percent reduction in labor income. The retirement response is heterogeneous across agent types, influenced by various factors, including preference, income, health status, and health expenditure. The negative effect of the aggregate health shock is significant even though the shock is expected to be temporary. Also, the effect hinges on the assumption that working poses a greater risk of receiving a negative health shock than retiring.

Suggested Citation

  • Hyunduk Suh & SeEun Jung, 2022. "Aggregate Health Shock and Retirement Decision," Inha University IBER Working Paper Series 2022-1, Inha University, Institute of Business and Economic Research.
    • Handle: RePEc:inh:wpaper:2022-1
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    Keywords

    Retirement; Health shock; COVID-19; Life-cycle model;
    All these keywords.

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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