The Dynamic Effects of Health on the Employment of Older Workers

26 Pages Posted: 7 Dec 2016

See all articles by Richard W. Blundell

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Jack Britton

Institute for Fiscal Studies (IFS)

Monica Costa Dias

Institute for Fiscal Studies (IFS)

Eric French

Department of Economics; Institute for Fiscal Studies (IFS)

Date Written: September 2016

Abstract

Using data from the Health and Retirement Study (HRS) and the English Longitudinal Study of Ageing (ELSA), we estimate a dynamic model of health and employment. We estimate how transitory and persistent health shocks affect employment over time. In a first step, we formulate and estimate a dynamic model of health. The procedure accounts for measurement error and the possibility that people might justify their employment status by reporting bad health. We find that health is well represented by the sum of a transitory white noise process and a persistent AR(1) process. Next, we use the method of simulated moments to estimate the employment response to these shocks. We find that persistent shocks have much bigger effects on employment than transitory shocks, and that these persistent shocks are long lived. For this reason employment is strongly correlated with lagged health, a fact that the usual cross-sectional estimates do not account for. We also show that accounting for the dynamics of health and employment leads to larger estimates of health’s effects on employment than what simple OLS estimates of health on employment would imply. We argue that the dynamic effect of health on employment could be generated by a model with human capital accumulation, where negative health shocks slowly reduce the human capital stock, and thus, gradually cause people to exit the labor market.

Keywords: Health, Older Workers, Health and Retirement Study, English Longitudinal Study of Aging

Suggested Citation

Blundell, Richard W. and Britton, Jack and Costa Dias, Monica and French, Eric, The Dynamic Effects of Health on the Employment of Older Workers (September 2016). Michigan Retirement Research Center Research Paper No. 2016-348, Available at SSRN: https://ssrn.com/abstract=2880691 or http://dx.doi.org/10.2139/ssrn.2880691

Richard W. Blundell (Contact Author)

UCL ( email )

Department of Economics
Gower Street
London, WC1E 6BT
United Kingdom
+44 20 7504 5863 (Phone)
+44 20 7916 2773 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctp39a/

IFS

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

HOME PAGE: http://www.ifs.org.uk

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jack Britton

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Monica Costa Dias

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Eric French

Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
106
Abstract Views
762
rank
277,371
PlumX Metrics