Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 744: Social Insurance and Retirement: A Cross-Country Perspective

Tobias Laun () and Johanna Wallenius ()
Additional contact information
Tobias Laun: Department of Economics, Uppsala University, Postal: Department of Economics, Uppsala University, Box 513, 751 20 Uppsala
Johanna Wallenius: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: In this paper we study the role of social insurance, namely old-age pensions, disability insurance and healthcare, in accounting for the differing labor supply patterns of older individuals across OECD countries. To this end, we develop a life cycle model of labor supply and health with heterogeneous agents. The key features of the framework are: (1) people choose when to stop working, and when/if to apply for disability and pension benefits, (2) the awarding of disability insurance benefits is imperfectly correlated with health, and (3) people can partially insure against health shocks by investing in health, the cost of which is dependent on health insurance coverage. We find that the incentives faced by older workers differ hugely across countries. In fact, based solely on differences in social insurance programs, the model predicts even more cross-country variation in the employment rates of people aged 55-64 than we observe in the data.

Keywords: Life cycle; Retirement; Disability insurance; Health

JEL-codes: E24; J22; J26

36 pages, April 25, 2013

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