Work Longer, Live Healthier: The Relationship Between Economic Activity, Health and Government Policy

Abstract

· In the past 50 years, labour market participation among older people has declined significantly, though the trend has reversed a little in recent years. In the EU, about 70 per cent of people aged between 60 and 64 are inactive.

· In the case of the UK there has been a significant drop in the employment rate among older men. The employment rate among men aged 55-59 decreased from over 90 per cent to less than 70 per cent between 1968 and the end of the 1990s. Employment for men aged 60-64 slumped from around 80 per cent to 50 per cent and, for those aged 65-69, it halved from 30 per cent to about 15 per cent.

· As with the rest of the OECD, this trend has reversed in recent years. The employment rate in 2008 was about 80 per cent for the 55-59 group, 60 per cent for the 60-64 group, and 20 per cent for the 65-69 age group.

· Whilst people have been retiring earlier on average, they have also been living longer. A 61-year-old man in 1960 had the same probability of dying within a year as a 70-year-old man in 2005.

· Healthy life expectancy at age 65 has also increased in the UK, although at a somewhat slower pace than regular life expectancy. This would suggest that people have the capability to work longer, though perhaps not to increase their working life on a one-for-one basis as life expectancy increases. Life expectancy at age 65 increased by 4.2 years for men between 1981 and 2006. During the same period, healthy life expectancy at age 65 increased by 2.9 years for men.

· Increases in the number of healthy years of life that we can enjoy have not been reflected in longer working lives – indeed, the reverse is the case: people were working longer half a century ago.

· If rising pension ages and labour force participation at older ages caused greater ill health then it would be a matter for concern. Most research on the relationship between health and working in old age has produced ambiguous results. Research in this area is inherently difficult because of the fact that, just as retirement can influence health, health can influence retirement decisions.

· To date, research has not generally examined the relationship between the number of years spent in retirement and health. This issue is important. It is possible that health will initially improve when somebody retires and then, after a while, start to deteriorate due to reduced physical activity and social interaction.

· New research presented in this paper indicates that being retired decreases physical, mental and self-assessed health. The adverse effects increase as the number of years spent in retirement increases.

· The results vary somewhat depending on the model and research strategy employed. By way of example, the following results were obtained: Retirement decreases the likelihood of being in ‘very good’ or ‘excellent’ self-assessed health by about 40 per cent Retirement increases the probability of suffering from clinical depression by about 40 per cent Retirement increases the probability of having at least one diagnosed physical condition by about 60 per cent Retirement increases the probability of taking a drug for such a condition by about 60 per cent.

· Higher state pension ages are not only possible (given longer life expectancy) and desirable (given the fiscal costs of state pensions) but later retirement should, in fact, lead to better average health in retirement. As such the government should remove impediments to later retirement that are to be found in state pension systems, disability benefit provision and employment protection legislation.