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Retirement Patterns in Europe and the U.S.

Retirement Patterns in Europe and the U.S. Arie Kapteyn (RAND) Tatiana Andreyeva (Yale). What we do. Document substantial differences in retirement patterns across Europe and with the U.S. Discuss several explanations for these differences Discuss the role of health

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Retirement Patterns in Europe and the U.S.

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  1. Retirement Patterns in Europe and the U.S. Arie Kapteyn (RAND) Tatiana Andreyeva (Yale)

  2. What we do • Document substantial differences in retirement patterns across Europe and with the U.S. • Discuss several explanations for these differences • Discuss the role of health • Estimate a somewhat illustrative model explaining the differences • Use the model to simulate some policy options

  3. SHARE • The Survey of Health, Ageing, and Retirement in Europe (SHARE) is patterned after the Health and Retirement Study in the U.S. and interviews respondents over 50 in a number of European countries. • In the fall of 2004, a first wave was conducted in eleven European countries (Germany, Switzerland, Belgium, Greece, Netherlands, Italy, Austria, Sweden, Denmark, France, Spain) covering about 18,000 households and 27,000 respondents. • We use the 2004 wave of HRS (some 20,000 respondents 50 and over in the U.S.)

  4. SHARE is Part of a Global Movement • US: Health and Retirement Study (HRS, 9 waves) • UK: English Longitudinal Study of Aging (ELSA, 4 waves) • Mexico: Mexican Health and Aging Study (MHAS, 2 waves) • Europe: SHARE (3 waves) • Korea: Korean Longitudinal Study of Aging (KLoSA, 2 waves) • Japan (2 waves) • China (pilot done, first wave soon) • India (pilot soon)

  5. Health • SHARE contains extensive health measures. For now we use a Self Reported Health measure, which rates health on a five-point scale: Excellent, Very Good, Good, Fair, Poor. • It turns out that respondents in different countries report very different health status

  6. Health • So if we want to use health as an explanatory variable in cross-country analyses we normalize: “being in poor or fair health” is dived by the proportion of respondents in a country with poor or fair health. • In descriptive analyses we don’t normalize, but show country means along with the means for subgroups

  7. Retirement Patterns (men) of 50-59

  8. Retirement Patterns (women) of 50-59

  9. Retirement Patterns (men) of 60-64

  10. Retirement Patterns (women) of 60-64

  11. Occupational status and health

  12. Occupational status and health

  13. Occupational status and health

  14. Occupational status and health

  15. So why do retirement patterns differ? • Financial incentives • Preferences/culture • Institutions • Health

  16. Financial Incentives: Gruber and Wise, 11 Developed Countries: Circa 1995 80% Belgium 70% , Italy France , Netherlands 60% , , UK Germany , 50% Spain , Canada , Unused Productive Capacity (55-65) , US 40% Sweden , , 30% Japan , 20% 10% 0 1 2 3 4 5 6 7 8 9 10 Tax Force to Retire (55-69) Source: Gruber and Wise 1999.

  17. Preferences/Culture • Some countries like leisure more than others (Blanchard) • Most of the annual hours reduction is a reduction in the length of a full time workweek; thus hard to see it as involuntary

  18. Institutions • Power of unions (Alesina, Glaeser, Sacerdote, 2005) • Partly a misguided attempt to maintain full employment through shorter working weeks or earlier retirement • Social multiplier effects (Glaeser et al., 2003)

  19. Health • Unhealthy individuals retire earlier • Yet, the secular improvement in health may induce earlier retirement. • Why? Increased health improves life time resources and the income effect probably induces a higher demand for leisure. • Why do we see at the same time that unhealthy individuals retire earlier? These are individuals who have depleted their health capital more quickly.

  20. A simple retirement model • We describe today’s labor market position as the result of events that happened in the past (a discrete hazard model starting at the age of 50). • Individual explanatory variables: • age, poor/fair health, marital status, gender and education. • Macro variables: • Early and normal retirement age • Net replacement rate • Generosity of disability benefits

  21. We simulate policy effects: US replacement rates

  22. Delay retirement ages by 2 years

  23. U.S. Disability Benefits

  24. No Poor Health

  25. Concluding Remarks • Retirement patterns vary widely across Europe • Incentives matter and offer policy options • Reward longer work • Consider eligibility rules for benefits • Tie eligibility age to life expectancy? • Health has a significant effect on the propensity to retire and offers policy options too • Make jobs healthier • Improve education • Promote healthy living • One size does not fit all countries

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