Structural dynamic model of retirement with latent health indicator

Fedor Iskhakov*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

Summary: This paper provides an empirical analysis of substitution between early retirement and disability as two major exit routes from the labour market in Norway. Analysis is based on a dynamic structural model that addresses the interplay between health, institutional constraints and economic incentives of men and women in the later part of their working lives. Unlike most previous research, which has typically used self-reported and indirect measures of disability conditions, in this paper health is modelled as a direct latent indicator of the eligibility to retire through the disability system. The model specifically accounts for the fact that employment may coincide with bad health when employees do not opt for disability in favour of more desirable retirement opportunities in the future. Norwegian register data are used for estimation. The substitution between disability and early retirement exits is investigated by simulating a complete elimination of the latter. The simulation suggests a moderate inflow of the displaced early pensioners into disability combined with partial employment and negligible inflow into the full-time disability.

Original languageEnglish
Pages (from-to)S126-S161
JournalEconometrics Journal
Volume13
Issue number3
DOIs
Publication statusPublished - Oct 2010
Externally publishedYes

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