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Stress inducing or relieving? Retirement's causal effect on health
This paper estimates the causal effect of retirement on health. There are several possible ways through which retiring might affect health. The opportunity costs of a healthy lifestyle (e.g. physical exercise, healthy diet) are lower for retirees than for employees. Furthermore, retirement might reduce the amount of stress and physical strain that an individual experiences. Hence, it could be that retirement has a positive effect on health. On the other hand, retirees might be less physically active and their social network and social support might decrease as a result of the transition. Moreover, individuals who are very satisfied with their work might experience stress as a result of ‘being forced’ to retire. The direction of the effect has implications for both policies affecting the official retirement age and the labor supply of elderly people. If retiring decreases health, an increase of the retirement age preserves the health of elderly employees. In contrast, if retirement has a positive effect on health, then an increase in the retirement age would lead to poorer health and increased health care spending, which could partially offset the savings of the state pension funds. Previous studies report mixed evidence.
Methods
Endogeneity of retirement status is addressed by two identification strategies: Regression Discontinuity Design and instrumental variables. The RD design exploits that the probability to retire increases discontinuously at age 60 and age 65. The causal effect of retirement is derived by comparing individuals just above the threshold to individuals just below the age threshold. The second identification strategy uses eligibility for a state pension as an instrument for retirement. The different eligibility ages of German state pension plans provide variation in age.
Data
The data comes from the German Socio-Economic Panel study. Self-reported health status and the physical and mental summary score of the SF12 measure are used as dependent variables. Eligibility for a state pension is derived from the self-reported employment history. Self-reported retirement status is used as a treatment variable. The sample consists of individuals between 50 and 80 during the years 1994 to 2010.
Results
The results show that retirement leads to an increase in subjective health and mental health, whereas the effect on physical health is not significant. There is evidence for effect heterogeneity with respect to gender, education and job satisfaction, e.g. men and lower educated individuals experience a large negative effect on physical health. Health behavior is examined as a possible mechanism. The results indicate that retirees are less likely to smoke or drink alcohol regularly.