Structural Dynamic Model of Retirement with Latent Health Indicator

36 Pages Posted: 3 Nov 2011

See all articles by Fedor Iskhakov

Fedor Iskhakov

University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2010

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 fullā€time disability.

Keywords: Disability, Dynamic programming, Early retirement, Health, Structural dynamic model

Suggested Citation

Iskhakov, Fedor, Structural Dynamic Model of Retirement with Latent Health Indicator (October 2010). The Econometrics Journal, Vol. 13, Issue 3, pp. S126-S161, 2010. Available at SSRN: https://ssrn.com/abstract=1953760 or http://dx.doi.org/10.1111/j.1368-423X.2010.00318.x

Fedor Iskhakov (Contact Author)

University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

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