Scandinavian Working Papers in Economics
Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics
No 04-7: The Impact of Health on Individual Retirement Plans: a Panel Analysis comparing Selfreported versus Diagnostic Measures
Mona Larsen () and Nabanita Datta Gupta ()
Additional contact information
Mona Larsen: Danish National Institute of Social Research, Postal: Herluf Trolles Gade 11, DK-1052 Copenhagen K
Nabanita Datta Gupta: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Abstract: Earlier studies have concluded that the use of self-reported health in retirement models is likely to yield an unreliable
impact of health on retirement due to “justification bias”. A few recent studies based on younger cohorts approaching
retirement age have found little support for this hypothesis. This paper adds fresh evidence to this debate by considering
the effect of health on retirement plans in samples of older workers and retirees drawn from a Danish panel survey from
1997-2002 merged to longitudinal register data. Using a wide array of alternative health measures, we compare the role
of subjectively versus objectively measured health as a determinant of retirement planning. We control for unobserved
heterogeneity as well as account for endogeneity and measurement error of health in retirement, and estimate separate
models for women as well as men. As in the more studies, justification bias turns out not to be important. Self-rated
physical and mental health are important predictors of retirement planning, in fact more important than economic
factors, both among men as well as women. At a disaggregated level, back problems and myalgia significantly hasten
male retirement, while back problems, osteoporosis and depression are conditions that significantly affect retirement
among women. Retirement planning is in general unaffected by being hospitalised for a serious condition. Looking at
health changes strengthens the conclusion that health is an important factor in retirement planning. In fact, health shocks
seem to increase the propensity to retire earlier. However, health seems to be less important for retirement planning in
Denmark compared to the US.
Keywords: Government Policy; Regulation; Public Health
56 pages, May 27, 2004
Full text files
04-7_mlndg.pdf
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