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Widening Health Gap in the US Labor Force Participation at Older Ages
Abstract
Using microdata from the CPS and the HRS, we document changes in labor force participation at older ages in the USA since the mid-1990s. Our main finding is that the over two-decade increase in participation is solely driven by individuals in good health, and does not differ across either educational or occupational groups. This phenomenon may importantly affect the results of social security reforms aiming at raising the mandatory retirement age and may exacerbate the health gap in lifetime earnings. (JEL codes: J22 and I14)
The employment rates of older men have risen dramatically since the mid-1990s in a number of developed economies. Nevertheless, the employment rates of men aged 55–64 in many OECD countries remain at or below the levels observed in the mid-1970s, despite substantial improvements in health and longevity. In this review I summarize some of the driving forces behind the dramatic changes in older men’s employment over the last several decades and discuss the role for retirement reform to further boost employment in the future.
Estimates of how health affects employment vary considerably. We assess how different methods and health measures impact estimates of the impact of health on employment using a unified framework for the US and England. We find that subjective and objective health measures, and subjective measures instrumented by objective measures produce similar estimates when using sufficiently rich objective measures. Moreover, a single health index can capture the relevant health variation for employment. Health deterioration explains up to 15% of the decline in employment between ages 50 and 70. Effects are larger for the US than England, and for the low educated.
Health shocks are an important source of risk. People in bad health work less, earn less, face higher medical expenses, die earlier, and accumulate much less wealth compared to those in good health. Importantly, the dynamics of health are much richer than those implied by a low-order Markov process. We first show that these dynamics can be parsimoniously captured by a combination of some lag-dependence and ex-ante heterogeneity, or health types. We then study the effects of health shocks in a structural life-cycle model with incomplete markets. Our estimated model reproduces the observed inequality in economic outcomes by health status, including the income-health and wealth-health gradients. Our model has several implications concerning the pecuniary and non-pecuniary effects of health shocks over the life-cycle. The (monetary) lifetime costs of bad health are very concentrated and highly unequally distributed across health types, with the largest component of these costs being the loss in labor earnings. The non-pecuniary effects of health are very important along two dimensions. First, individuals value good health mostly because it extends life expectancy. Second, health uncertainty substantially increases lifetime inequality by affecting the variation in lifespans. JEL Codes: D52, D91, E21, H53, I13, I18
The degree to which retirement decisions are driven by health is a key concern for both academics and policy makers. In this review, we survey the economic literature on the health–retirement link in developed countries. We describe the mechanisms through which health affects labor supply and discuss how these mechanisms interact with public pensions and public health insurance. The historical evidence suggests that health is not the primary source of variation in retirement across countries and over time. Furthermore, the decline of health with age can only explain a small share of the decline in employment near retirement age. Health considerations nonetheless play an important role, especially in explaining cross-sectional variation in employment and other outcomes within countries. We review the mechanisms through which health affects retirement and discuss recent empirical analyses.
Using the 2003 National Survey of College Graduates, I examine how immigrants perform relative to natives in activities likely to increase U.S. productivity, according to the type of visa on which they first entered the United States. Immigrants who first entered on a student/trainee visa or a temporary work visa have a large advantage over natives in wages, patenting, commercializing or licensing patents, and publishing. In general, this advantage is explained by immigrants' higher education and field of study, but this is not the case for publishing, and immigrants are more likely to start companies than natives with similar education. Immigrants without U.S. education and who arrived at older ages suffer a wage handicap, which offsets savings to the United States from their having completed more education abroad. Immigrants who entered with legal permanent residence do not outperform natives for any of the outcomes considered.
This paper provides an empirical analysis of the effect of employer-provided health insurance and Medicare in determining retirement behavior. Using data from the Health and Retirement Study, we estimate the first dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that uncertainty and saving are both important. We find that workers value health insurance well in excess of its actuarial cost, and that access to health insurance has a significant effect on retirement behavior, which is consistent with the empirical evidence. As a result, shifting the Medicare eligibility age to 67 would cause a significant retirement delay--as large as the delay from shifting the Social Security normal retirement age from 65 to 67.
Using an estimable dynamic programming model of retirement behavior, this paper assesses the relative importance of Medicare and Social Security in determining job exit rates at age 65. Of central importance is whether individuals value health insurance benefits not just for the reduction in average medical expenses, but also for the reduction in the volatility of medical expenses. To address this problem the model accounts explicitly for the effects of health cost volatility and health insurance on retirement behavior. By including a savings decision within the model, we allow for the possibility that individuals can self-insure against health cost shocks. Self-insurance potentially reduces an individual's valuation of health insurance. Using data from the Health and Retirement Survey, we find that the reduction in expected medical expenses explains 75% of a typical individual's valuation of health insurance, with the reduction in volatility explaining the remaining 25%. We find that shifting the Medicare eligibility age to 67 will delay age of retirement. However, shifting the Social Security normal retirement age to 67 will cause a larger retirement delay than shifting the Medicare eligibility age to 67.
We study the effects of public pension systems on the retirement timing of older workers and, in turn, the health consequences of delaying retirement by those workers. Causal inference relies on a social security reform in Israel that shifted payments from husbands to their (non-working) wives, thereby substantially reducing the implied tax on the husband's employment while keeping overall household wealth constant. Using administrative social security data, we estimate extensive-margin labor supply elasticities w.r.t. the average net-of-tax rate of about 0.43 for men over 65. Using the reform to instrument for employment, we find that working an additional full year at old age decreases longevity. This mortality effect occurs after age 75 and is driven by workers holding blue-collar jobs. Finally, we evaluate the effect of the reform on earnings. The results imply a small value for an additional year of life, suggesting that workers underestimate the health cost of employment at older ages.
Employment trends in the U.S. were similar across age groups in the 1960s, 1970s, and 1980s: male employment rates declined or were flat at all ages and female employment rates increased or were flat at all ages. But employment trends diverged more recently, with employment rising at older ages and falling at younger ages, for both men and women. This paper seeks to explain this divergence. We estimate labor supply models for men and women, allowing differences in behavior across age groups. The results indicate that changes in the educational composition of the population and Social Security reforms can account for a modest proportion of the divergence. An additional factor for men was the increase in age at first marriage. However, much of the divergence remains unexplained.
Job polarization refers to the recent disappearance of employment in occupations in the middle of the skill distribution. Jobless recoveries refers to the slow rebound in aggregate employment following recent recessions, despite recoveries in aggregate output. We show how these two phenomena are related. First, job polarization is not a gradual process; essentially all of the job loss in middle-skill occupations occurs in economic downturns. Second, jobless recoveries in the aggregate are accounted for by jobless recoveries in the middle-skill occupations that are disappearing.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
After a long decline, the Labor Force Participation Rate (LFPR) of older men in the United States leveled off in the 1980s, and began to increase in the late 1990s. We examine how changes in Social Security rules affected these trends. We attribute only a small portion of the decline from the 1960s–80s to the increasing generosity of Social Security over this period. Increases in the Full Retirement Age and the Delayed Retirement Credit explain one quarter to one half of the recent increase in the LFPR. Increasing educational attainment and increasing LFPR of married women also contributed to the recent rise.
This paper seeks to explain the substantial increases in older men’s labour force participation rates that have been observed since the mid-1990s. Using data from the U.S. March Current Population Survey, the Canadian Labour Force Survey, and the U.K. Labour Force Survey, I investigate the hypothesis that husbands treat the leisure time of their wives as complementary to their own leisure at older ages. I exploit the cohort effects driving recent increases in older women’s participation rates to identify the effect of a wife’s participation decision on her husband’s participation decision. Given this complementarity in leisure time, a large portion of the increase in older men’s participation rates may be explained as a response to the recent increases in older women’s participation in the labour force. The methodology of Dinardo, Fortin, and Lemieux (1996) is used to decompose the changes in older married men’s participation rates, demonstrating that increases in wives’ participation in the labour force can explain roughly one quarter of the recent increase in participation in the U.S., almost one half of the recent increase in participation in Canada, and roughly one third of the recent increase in the U.K. Older men’s educational attainment is also an important factor explaining recent increases in participation, yet cannot be expected to drive further increases in participation rates. In contrast, expected increases in older wives’ participation over the next decade are expected to drive further increases in older men’s participation rates.
This article seeks to explain the substantial increases in older men's labor force participation rates observed since the mid-1990s. Using data from the United States, Canada, and the United Kingdom, I exploit the cohort effects driving recent increases in older women's participation rates to identify the effect of a wife's participation decision on her husband's participation decision. I then decompose the changes in older married men's participation rates, demonstrating that husbands' responses to increases in wives' participation in the labor force can explain one-fourth, one-half, and one-third of the increase in the United States, Canada, and the United Kingdom, respectively. (c) 2008 by The University of Chicago. All rights reserved..
Comment on Shocks, Institutions, and Secular Changes in Employment of Older Individuals
- N Jaimovich
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- N Jaimovich
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