SeaTE: Subjective ex ante Treatment Effect of Health on Retirement

70 Pages Posted: 4 Dec 2018

See all articles by Pamela Giustinelli

Pamela Giustinelli

Bocconi University ; University of Michigan at Ann Arbor

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2018

Abstract

This paper develops an innovative approach to measuring the effect of health on retirement. The approach elicits subjective probabilities of working at specified time horizons fixing health level. Using a treatment-effect framework, within-individual differences in elicited probabilities of working given health yield individual-level estimates of the causal effect of health (the treatment) on working (the outcome). We call this effect the Subjective ex ante Treatment Effect (SeaTE). The paper then develops a dynamic programming framework for the SeaTE. This framework allows measurement of individual-level value functions that map directly into the dynamic programming model commonly used in structural microeconometric analysis of retirement. The paper analyzes conditional probabilities elicited in the Vanguard Research Initiative (VRI)—a survey of older Americans with positive assets. Among workers 58 and older, a shift from high to low health would on average reduce the odds of working by 28.5 percentage points at a two-year horizon and 25.7 percentage points at a four-year horizon. There is substantial variability across individuals around these average SeaTEs, so there is substantial heterogeneity in taste for work or returns to work. This heterogeneity would be normally unobservable and hard to disentangle from other determinants of retirement in data on realized labor supply decisions and health states. The paper’s approach can overcome the problem that estimates of the effect of health on labor supply based on behavioral (realizations) data can easily overstate the effect of health on retirement whenever less healthy workers tend to retire earlier for reasons other than health.

Keywords: older workers, health

Suggested Citation

Giustinelli, Pamela and Shapiro, Matthew D., SeaTE: Subjective ex ante Treatment Effect of Health on Retirement (February 2018). Michigan Retirement Research Center Research Paper No. 2018-382. Available at SSRN: https://ssrn.com/abstract=3292181 or http://dx.doi.org/10.2139/ssrn.3292181

Pamela Giustinelli

Bocconi University ( email )

Via Gobbi 5
Milan, Milan 20136
Italy

HOME PAGE: http://https://sites.google.com/site/pgiustinelli/

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Matthew D. Shapiro (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

and Survey Research Center
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-5419 (Phone)
313-764-2769 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
313-764-5419 (Phone)
313-764-2769 (Fax)

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