Social Security Programs and Retirement around the World The Capacity to Work at Older Ages
edited by David A. Wise
University of Chicago Press, 2017
Cloth: 978-0-226-44287-7 | Electronic: 978-0-226-44290-7
DOI: 10.7208/chicago/9780226442907.001.0001
ABOUT THIS BOOKAUTHOR BIOGRAPHYTABLE OF CONTENTS

ABOUT THIS BOOK

In recent years, the retirement age for public pensions has increased across many countries, and additional increases are in progress or under discussion in many more. The seventh stage of an ongoing research project studying the relationship between social security programs and labor force participation, Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages explores people’s capacity to work beyond the current retirement age. It brings together an international team of scholars from twelve countries—Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom, and the United States—to analyze this issue. Contributors find that many—but not all—individuals have substantial capacity to work at older ages. However, they also consider how policymakers might divide gains in life expectancy between years of work and retirement, as well as the main impediments to longer work life. They consider factors that influence the demand for older workers, as well as the evolution of health and disability status, which may affect labor supply from the older population.
 

AUTHOR BIOGRAPHY

David A. Wise is the John F. Stambaugh Professor of Political Economy Emeritus at the John F. Kennedy School of Government at Harvard University. He is the former area director of Health and Retirement Programs and director of the Program on the Economics of Aging at the National Bureau of Economic Research.
 

TABLE OF CONTENTS

Acknowledgments


DOI: 10.7208/chicago/9780226442907.003.0000
[work capacity;health trends;longevity;retirement;social security;economics of aging;international comparisons]
This is the introduction to the seventh phase of the international social security project. The project compares the experiences of twelve developed countries and uses differences in their retirement programs to explore their effects on retirement and related questions. Earlier phases find that: 1) incentives for retirement are correlated with labor force participation rates; 2) workers with stronger incentives to delay retirement are more likely to do so; and 3) changes to social security could affect labor force participation and government finances. The fourth volume explores whether higher employment among older persons increases youth unemployment, but finds no link. Recent volumes find that changes in disability insurance (DI) participation are more closely linked to DI reforms than to changes in health and that reducing access to DI would raise labor supply. This seventh phase explores whether older people are healthy enough to work longer. We use two main methods to estimate health capacity to work, asking how much older individuals today could work if they worked as much as those with the same mortality rate in the past or as younger individuals in similar health. Both methods suggest there is significant additional health capacity to work at older ages. (pages 1 - 34)
This chapter is available at:
    University of Chicago Press

- Alain Jousten, Mathieu Lefebvre
DOI: 10.7208/chicago/9780226442907.003.0001
[employment;retirement;work capacity;health]
Previous waves of this project studied the effect of financial incentives created by formal and de facto (early) retirement programs on an individual’s decision to retire, the fiscal impact of such behavior and reforms’ impact thereon. Furthermore, the impact of (early) exits on youth employment and the respective roles of health and program rules as determinants of disability program enrollment have been studied. (Dellis et al. 2004; Desmet et al. 2007, Jousten et al. 2010, 2012, 2014). One aspect that most of these papers have essentially bypassed is work-capacity issues. We explore the link between health indicators and employment rates of the population aged 55 or more. Our focus lies on work capacity as a key determinant of employment. Using cohort mortality information as a proxy for overall health outcomes, we establish a substantial untapped work capacity in the population 55+. Even stronger results are obtained when relying on individual-level objective and subjective health and socioeconomic parameters as predictors. (pages 35 - 58)
This chapter is available at:
    University of Chicago Press
    University Press Scholarship Online

- Kevin Milligan, Tammy Schirle
DOI: 10.7208/chicago/9780226442907.003.0002
[employment;retirement;work capacity;health]
In this study we are concerned with measuring older individuals’ health capacity for work in Canada. As health improves and people live longer, to what extent are they able to work more? Of course, one’s capacity to work is not directly measurable. We take two separate and distinct approaches to measuring health capacity for work among older men and women in this study. The first uses age-specific mortality rates to proxy for overall health, comparing employment rates at similar levels of mortality. The second method uses a mix of health measures to estimate a health-employment relationship at ages 50 to 54, then uses these estimates to project the employment capacity of older workers. Our results suggest a substantial unused capacity for work among older Canadians. (pages 59 - 84)
This chapter is available at:
    University of Chicago Press
    University Press Scholarship Online


DOI: 10.7208/chicago/9780226442907.003.0003
[employment;retirement;work capacity;health]
Longevity is increasing and many people are spending a greater proportion of their lives reliant on pensions to support consumption. In response to this, several countries have mandated delays to age of first entitlement to pension benefits in order to reduce incentives to retire early. However, it is unknown to what extent older individuals have the health capacity to sustain the longer working lives that delayed pension benefits may encourage. We estimate the health capacity to work longer in Denmark by comparing how much older individuals work today with how much those with similar mortality rates worked in the past, and how much younger individuals today with similar self-assessed health work. We find substantial health capacity for longer working lives among those currently aged 55 and above. We also find significant heterogeneity by education and gender. Those with a high school degree have the greatest additional work capacity, women have more additional capacity than men, especially women with a college degree. (pages 85 - 110)
This chapter is available at:
    University of Chicago Press


DOI: 10.7208/chicago/9780226442907.003.0004
[health;aging;labor;retirement]
France has low labor force attachment of older workers and its labor participation rates for those over 50 is changing, partly due to pension reforms since 1993. Pension reforms allocate part of the large gains in life expectancy to work rather than retirement. The implicit assumption has been that additional years of life mean workers are healthy enough to work. Considering mortality and health status, we ask whether the retirement age has increased beyond the health capacity of workers. We use two methodological approaches: one based on employment rate gaps across time for given mortality rates; the other using the work/health relationship measured at certain ages to predict the health-related work capacity of older individuals at the same period of time. Both methods provide measures of additional work capacity, defined as a measure of the distance between current retirement ages and the “health barrier,” i.e. the age at which health prevents people from working. Both methods predict high average levels of additional work capacity, but this changes when disaggregating by social groups or education. Additional work capacity does not indicate how much seniors should work. The methods used here leave aside many factors that determine older workers’ employment rate. (pages 111 - 148)
This chapter is available at:
    University of Chicago Press

- Hendrik Jürges, Lars Thiel, Axel Börsch-Supan
DOI: 10.7208/chicago/9780226442907.003.0005
[social security;health;aging;retirement]
After two decades of reforms that have tightened eligibility for early retirement and the generosity of social security payments, the German government has begun to re-introduce more generous disability and early retirement benefits. Often, poor health is cited as the main reason workers cannot work until the regular retirement age. We try to answer a seemingly simple question: what is the proportion of older individuals who could work in the labor market if they wanted to and if they were not limited by poor health? To answer this question, we follow two different empirical approaches with a similar logic: we estimate the link between health and labor force participation in a population whose employment patterns are or were hardly affected by the current (early) retirement incentives. Using these “pure health effects” on labor force participation to extrapolate to a population that is currently strongly affected by legislation informs us how many could not work for health reasons and how many could work. We find substantial capacity to work among the older population. We estimate that two thirds of the population would be capable of working in the labor market until they turn 70 if they wanted to. (pages 149 - 180)
This chapter is available at:
    University of Chicago Press
    University Press Scholarship Online


DOI: 10.7208/chicago/9780226442907.003.0006
[social security;health;aging;retirement]
Public programs that benefit older individuals, such as Social Security, may be changed in the future in ways that reflect an expectation of longer work lives. But do older Italians have the health capacity to work longer? This paper explores this question by asking how much older individuals could work if they worked as much as those with the same mortality rate in the past or as much as their younger counterparts in similar health. Using both methods, we estimate that there is significant additional capacity to work at older ages. We also explore whether there are differences in health capacity across education groups and whether health has improved more over time for the highly educated, using education quartiles to surmount the challenge of changing levels of education over time. (pages 181 - 218)
This chapter is available at:
    University of Chicago Press


DOI: 10.7208/chicago/9780226442907.003.0007
[social security;health;retirement]
This paper explores the extent to which older Japanese can potentially expand the labor supply, based on two analytic approaches: the Milligan-Wise and Cutler et al. methods. First, we examine how much older individuals could work if they worked as much as those with the same mortality rate in the past (the Milligan-Wise method). Second, we estimate how much older individuals could work if they worked as much as younger ones in similar health (the Cutler et al. method). Results from both of these methods underscore a large work capacity in old age in Japan. We further investigate differences in health capacity across education groups and find that highly educated individuals tend to have more capacity to work after they are 65 years of age. (pages 219 - 242)
This chapter is available at:
    University of Chicago Press

- Adriaan Kalwij, Arie Kapteyn, Klaas de Vos
DOI: 10.7208/chicago/9780226442907.003.0008
[social security;health;retirement]
Over the last two decades policy reforms in the Netherlands have increased work incentives, resulting in rising employment rates at older ages, and population health has increased as well. We ask how much people could work taking into account their health status, using two approaches. The first approach takes the relation between mortality and employment in 1981 as a base and then estimates what employment rates could be in 2010 if the relation between mortality and employment were the same in 1981 and 2010. The estimated additional work capacity based on this approach is about 50 percentage points for males at age 65. A second approach estimates the relation between health and employment at age 50–54 and predicts employment at later ages using health at these later ages. This leads to an estimated additional work capacity in 2010 of more than 75 percentage points for males aged 65–74. When including mortality as an additional health indicator to control for unobserved health differences in the latter approach, the estimated work capacities are more in line with those from the former approach: about 53 percentage points for males aged 65–69 and 44 percentage points for males aged 70–74. (pages 243 - 268)
This chapter is available at:
    University of Chicago Press
    University Press Scholarship Online


DOI: 10.7208/chicago/9780226442907.003.0009
[health;demographic trends;aging;labor force composition]
In a world with limited PAYGO financing possibilities this paper explores whether older Spanish individuals have the health capacity to work longer. For that purpose we use Milligan-Wise and Cutler-Meara Cutler-Meara- Richards-Shubik simulation methods. Our results suggest that Spanish workers have significant additional capacities to extend their working careers. Using the method proposed by Milligan and Wise (2015) we estimate that in 2010 individuals aged fifty-five to sixty-nine would have worked an additional 7.08 years if they had worked as much as individuals with the same mortality rates in 1976. Using individual level data from the Survey of Health and Retirement in Europe and the method suggested by Cutler et al. (2012), we estimate that work capacity increases over 60% once the normal retirement age of sixty-five kicks in. We are nonetheless cautious with our conclusions as these results hinge upon somewhat strong assumptions. (pages 269 - 300)
This chapter is available at:
    University of Chicago Press

- Per Johansson, Lisa Laun, Mårten Palme
DOI: 10.7208/chicago/9780226442907.003.0010
[SHARE;health inequality;retirement]
Following an era of a development towards earlier retirement, there has been a reversed trend to later exit from the labor market in Sweden since the late 1990s. We investigate whether or not there are potentials, with respect to health and work capacity of the population, for extending this trend further. We use two different methods. First, the Milligan and Wise (2012) method, which calculates how much people would participate in the labor force at a constant mortality rate. Second, the Cutler et al. (2012) method, which asks how much people would participate in the labor force if they would work as much as the age group 50-54 at a particular level of health. We also provide evidence on the development of self-assessed health and health inequality in the Swedish population. (pages 301 - 328)
This chapter is available at:
    University of Chicago Press
    University Press Scholarship Online


DOI: 10.7208/chicago/9780226442907.003.0011
[health;labor force;labor supply;retirement]
This paper estimates how much additional work capacity there might be among men and women aged between 55 and 74 in the United Kingdom, given their health, and how this has evolved over the last decade. The objective is not to suggest how much older people should work but rather to shed light on how much ill-health (as opposed to other constraints and preferences) constrains older individuals’ ability to work. We present two alternative methods, both of which rely on constructing a ‘counterfactual’ employment rate for older people based on the behavior of other similarly healthy individuals. Both methods suggest that there is significant additional capacity to work among older men and women, but that this has been declining over recent years for women (and possibly also for men). This latter finding suggests that the increase in employment rates among older people seen over the last decade are more rapid than would have been expected based on the improvements seen in health alone. (pages 329 - 358)
This chapter is available at:
    University of Chicago Press


DOI: 10.7208/chicago/9780226442907.003.0012
[health;aging;retirement;employment]
Public programs that benefit older individuals, such as Social Security and Medicare, may be changed in the future in ways that reflect an expectation of longer work lives. But do older Americans have the health capacity to work longer? This paper explores this question by asking how much older individuals could work if they worked as much as those with the same mortality rate in the past or as much as their younger counterparts in similar health. Using both methods, we estimate that there is significant additional capacity to work at older ages. We also explore whether there are differences in health capacity across education groups and whether health has improved more over time for the highly educated, using education quartiles to surmount the challenge of changing levels of education over time. (pages 359 - 394)
This chapter is available at:
    University of Chicago Press

Contributors

Author Index

Subject Index