The Retirement Effect on Mental Health in Europe During 2004-2015: Evidence of Ashenfelter's Dip from SHARE Panel Data
33 Pages Posted: 11 Apr 2019
Date Written: March 21, 2019
Using panel data from the Survey of Health, Ageing and Retirement in Europe (SHARE), this study investigates the effect of retirement on mental health measured by the EURO-D scale with twelve levels of depression. Age above specific-country eligible pension age is used as an instrumental variable for retirement status in the fixed-effect model to remedy the potential endogeneity bias. This study takes account of reasons for retirement and compares short term effects and long term effects of retirement, which is rarely done before. Most importantly, this study is the first effort to capture the mental health effect in anticipation of retirement, a phenomenon called 'Ashenfelter’s dip' or 'pre-programme dip'.
The findings indicate that retirees feel less depressed than people who remain in the labour force. When the age above pension age of individuals is included to predict retirement behaviour, the results confirm an analogous effect of retirement on mental health. Retiring due to positive circumstances and aspirational motivations reduce depression remarkably, while there is no evidence to confirm that retiring by negative circumstances affect one’s mental health. The study finds a similar effect for people who are expected to retire in the next two years, but this is not the case for people who know they will retire in the next four years. The potential retirees seem to adjust their lifestyles in response to future retirement, showing evidence of the 'Ashenfelter dip'. Two years after retirement, the effect is reverted, but after four years the results are not conclusive. Retirees may adapt to their new life completely and the effect of retirement is no longer important.
Keywords: SHARE, retirement, mental health, fixed-effects, instrumental variable, Ashenfelter dip
JEL Classification: I10, I15, I18, J14, J26
Suggested Citation: Suggested Citation