Working Paper: NBER ID: w20114
Authors: Paul Bingley; Nabanita Datta Gupta; Michael Jorgensen; Peder Pedersen
Abstract: There are large differences in labor force participation rates by health status. We examine to what extent these differences are determined by the provisions of Disability Insurance and other pension programs. Using administrative data for Denmark we find that those in worse health and with less schooling are more likely to receive DI. The gradient of DI participation across health quintiles is almost twice as steep as for schooling - moving from having no high school diploma to college completion. Using an option value model that accounts for different pathways to retirement, applied to a period spanning a major pension reform, we find that pension program incentives in general are important determinants of retirement age. Individuals in poor health and with low schooling are significantly more responsive to economic incentives than those who are in better health and with more schooling. Similar gradients in outcomes and behavior by health and schooling partially reflects the less educated having poorer health on average, but also that the less educated have worse job prospects and higher replacement rates due to a progressive formula for DI and other pension benefits.
Keywords: Disability Insurance; Retirement; Health Status; Pension Programs
JEL Codes: H55; I1; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| DI provisions (H53) | retirement age (J26) |
| health status (I12) | DI participation (O39) |
| educational attainment (I21) | DI participation (O39) |
| health status (I12) | retirement age (J26) |
| educational attainment (I21) | retirement age (J26) |
| DI participation (O39) | retirement age (J26) |
| health status and educational attainment (I24) | DI participation (O39) |