Retirement Patterns in Europe and the U.S.

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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 - PowerPoint PPT Presentation

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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

• Estimate a somewhat illustrative model explaining the differences

• Use the model to simulate some policy options

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.)

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)

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

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

Retirement Patterns (men) of 50-59

Current Occupation Status by Country Among Men Aged 50-59

0%

20%

40%

60%

80%

100%

Employed/ self-employed Retired Unemployed Permanently sick or disabled Homemaker

Retirement Patterns (women) of 50-59

Current Occupation Status by Country Among Women Aged 50-59

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Employed/ self-employed Retired Unemployed Permanently sick or disabled Homemaker

Retirement Patterns (men) of 60-64Current Occupation Status by Country Among Men Aged 60-64

0%

20%

40%

60%

80%

100%

Employed/ self-employed Retired Unemployed Permanently sick or disabled Homemaker

Retirement Patterns (women) of 60-64

Current Occupation Status by Country Among Women Aged 60-64

0%

20%

40%

60%

80%

100%

Employed/ self-employed Retired Unemployed Permanently sick or disabled Homemaker

Occupational status and health

Poor/ Fair Health Among Employed and Retired Men Aged 50-59

0

10

20

30

40

50

60

%

Retired

Employed/self-employed

Occupational status and health

Poor/ Fair Health Among Employed and Retired Women Aged 50-59

0

10

20

30

40

50

60

%

Retired

Employed/self-employed

Occupational status and healthPoor/ Fair Health Among Employed and Retired Men Aged 60-64

0

10

20

30

40

50

60

Switzerland Sweden Austria Denmark Belgium Greece England Netherlands U.S. France Germany

%

Retired

Employed/self-employed

Occupational status and health

Poor/ Fair Health Among Employed and Retired Women Aged 60-64

0

10

20

30

40

50

60

Austria Belgium Sweden Denmark France Switzerland England U.S. Netherlands Greece Spain

%

Retired

Employed/self-employed

So why do retirement patterns differ?

• Financial incentives

• Preferences/culture

• Institutions

• Health

Financial Incentives: Gruber and Wise, 11 Developed Countries: Circa 1995

0 1 2 3 4 5 6 7 8 9 10Tax Force to Retire (55-69)

10%

20%

30%

40%

50%

60%

70%

80%

Unu

sed

Prod

uctiv

e C

apac

ity (5

5-65

)

Japan

US

Canada

Sweden

SpainUK

France

Germany

Netherlands

BelgiumItaly

Source: Gruber and Wise 1999.

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

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)

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.

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

We simulate policy effects: US replacement rates

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Base, lt 60 US RP, lt 60 Base 60-44 US RP, 60-64 Base 65+ US RP, 65+

Delay retirement ages by 2 years

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Base lt 60

ret+2, lt 60

Base 60-64

ret+2, 60-64

Base 65+

ret +2, 65+

U.S. Disability Benefits

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Base, lt 60

U.S. DI, lt 60

Base, 60-64

U.S. DI, 60-64

Base, 65+

U.S. DI, 65+

No Poor Health

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Base, lt 60Healthy, lt 60

No poor health

Base, 60-64

No poor health, 60-64

Base, 65+

No poor health, 65+

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