Health and Labor Force Participation of the Elderly in Europe: What Do Objective Health Measures Add to the Analysis?

Abstract

In this paper, we study labour force participation behaviour of individuals aged 50-64 in 11 European countries. The data are drawn from the new Survey of Health, Ageing and Retirement in Europe (SHARE). We examine the value added of objective health variables in relation to potentially endogenous self-reported health. We approach the endogeneity of self-reported health as an omitted variables problem. In line with the literature on the reliability of self-reported health, ambiguous results are obtained. In some countries, self-reported health does a fairly good job: controlling for extra health related variables does not seem to add much to the analysis. In other countries, however, self-reported health is clearly endogenous with results that are in line with the justification hypothesis. They illustrate the multidimensional nature of health and the need to control for objective health variables when analyzing labour force participation behaviour. This makes an instrumental variables approach to deal with endogenous self-reported health less appropriate.

Keywords: SHARE, labour force participation, self-reported health, objective health, retirement

JEL Classification: I10, J22, J26