Mental Health Around Retirement: Evidence of Ashenfelter’s Dip Based on SHARE Panel Data, 2004−2017
48 Pages Posted: 11 Apr 2019 Last revised: 9 Sep 2019
Date Written: March 21, 2019
In this study, using panel data from the Survey of Health, Ageing and Retirement in Europe (SHARE), we investigate the levels of depression of European adults around the time of retirement. Fixed-effect models are employed to control for unobserved time-invariant confounding factors, and instrumental variables are included to address potential endogeneity bias. Further, we consider various reasons for retirement and, unlike previous studies on the topic, compare the levels of depression before and after retirement.
Our results indicate that retirement based on aspirational motivations and positive circumstances reduces depression significantly; there is scant evidence that retiring under negative circumstances could affect mental health. Fixed-effects models indicate that, overall, retiring reduces retirees’ depression. When instrumental variables are specified in the model, retirement is shown to have small, unstable impacts on mental health. Notably, adults who plan to retire in the next two years experience less depression compared to others in the workforce. These adults appear to adjust their lifestyles in response to their impending retirement, showing evidence of Ashenfelter’s dip. Two years after retirement, when the “honeymoon” phase is over, an increase in the depression level among retirees brings their average mental health to a normal level. From this point in time, retirees may have completely adapted to their new lives and the effect of retirement is no longer important. Various models of retirement stages in the literature support these findings.
Keywords: SHARE, retirement, mental health, fixed-effects, instrumental variable, Ashenfelter dip
JEL Classification: I10, I15, I18, J14, J26
Suggested Citation: Suggested Citation