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Health, Income, and Retirement: Evidence from Nineteenth Century America

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  • Dora L. Costa

Abstract

I investigate the factors that fostered rising retirement rates prior to social security and private-sector pensions by estimating the income effect of a large government transfer, the first major pension program in the United States, covering Union Army veterans of the American Civil War. The pension, because of the program's rules, had only an income effect and these rules create a natural experiment to identify the effects of pensions and health on labor supply. Pensions exerted a large impact on retirement rates. The elasticity of non-participation with respect to pension income was at least 0.66, exceeding even the most conservative estimates of that elasticity with respect to social security payments. Union Army pensions were a much larger fraction of retirement income than social security payments today and this accounts for some of the difference in estimated elasticities. My findings suggest that secular increases in income can explain a substantial part of the rise in retirement rates, although the elasticity of labor force non-participation with respect to transfer income may have fallen over time, perhaps because of the increasing attractiveness of leisure.

Suggested Citation

  • Dora L. Costa, 1993. "Health, Income, and Retirement: Evidence from Nineteenth Century America," NBER Working Papers 4537, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4537
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    1. Atack, Jeremy & Bateman, Fred, 1992. "How Long Was the Workday in 1880?," The Journal of Economic History, Cambridge University Press, vol. 52(1), pages 129-160, March.
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    Cited by:

    1. Tayatat Kanjanapipatkul, 2003. "Pensions and Labor Force Participation of Civil War Veterans," NBER Chapters, in: Health and Labor Force Participation over the Life Cycle: Evidence from the Past, pages 231-252, National Bureau of Economic Research, Inc.
    2. Fogel, Robert W, 1994. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," American Economic Review, American Economic Association, vol. 84(3), pages 369-395, June.

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    More about this item

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • N31 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: Pre-1913

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