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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 741:
A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform

Tobias Laun () and Johanna Wallenius ()

Abstract: In this paper we develop a life cycle model of labor supply and retirement to study the interactions between health and the labor supply behavior of older workers, in particular disability insurance and pension claiming. In our framework, individuals choose when to stop working and, given eligibility criteria, when/if to apply for disability and pension benefits. Individuals care about their health and can partially insure against health shocks by investing in health. We use the model to study the labor supply implications of the recent Swedish pension reform. We find that the new pension system creates big incentives for the continued employment of older workers. In particular, the model predicts an increase in the average retirement age of more than two years.

Keywords: life cycle; retirement; pension reform; disability insurance; health; (follow links to similar papers)

JEL-Codes: E24; J22; J26; (follow links to similar papers)

30 pages, March 6, 2012

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This paper is published as:
Laun, Tobias and Johanna Wallenius, (2015), 'A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform', Journal of Public Economics, Vol. 127, July, pages 127-136



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