Health and Work of the Elderly

Abstract

This paper aims to exp1ore the interre1ation between hea1th and work decisions of e1der1y workers, taking the various ways in which hea1th and work can influence each other exp1icitly into account. For this, two issues are of re1evance. Se1f-assessed health measures are usually at hand in empirical analyses and research indicates that these may be affected by endogenous, state dependent, reporting behavior. Furthermore, even if an objective health measure is used, it is not likely to be strictly exogenous to labor market status or labor income. Health and labor market variables are correlated because of unobserved individual-specific characteristics (e.g., investments in human capital and health capital). Moreover, one's labor market status is expected to have a (reverse) causal effect on health. A solution to the "Health and Retirement Nexus" requires an integrated model for work decisions, health production and health reporting mechanisms. We formulate such a model and estimate it on a longitudinal dataset of Dutch elderly.

Keywords: Retirement, health, endogeneity, state dependent reporting errors

JEL Classification: I12, J14