Retirement Patterns in Europe and the U.S.

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

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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 dont 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.
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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)

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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.

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A simple retirement model

• We describe todays 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

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We simulate policy effects US replacement rates
22
Delay retirement ages by 2 years
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U.S. Disability Benefits
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No Poor Health
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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