Dynamic programming model of health and retirement
Link to article:
Authors:
Iskhakov, Fedor
Year:
2008
Reference:
Memorandum
Number in series: 3
Summary
A structural dynamic programming model is applied for modeling labour market transitions among older age workers in Norway in 1992-2003. Special attention is given to early retirement pension and disability pension as two major exit routes from the labour force. Health status is represented by a latent variable reflecting the eligibility for participating in disability programs. Incomplete information maximum likelihood method is used in several stages to facilitate the estimation. The model is used to investigate the degree of potential substitution of the early retirement and retirement through the disability insurance scheme. Estimates of the structural parameters of the concealed health process allow for forecasting the individual “eligibility” for the disability and thus facilitate the assessment of the potential substitution between the two exit routes from the labour force. Performed policy simulation of the complete elimination of the early retirement program indicates nearly complete return of the otherwise early pensioners back to the labour market.
JEL:
J22, J26, I10, C61
Keywords:
Retirement, health, early retirement, disability, labour market transitions, structural dynamic model, dynamic programming
Project:
Oppdragsgiver: Norges forskningsrådOppdragsgivers prosjektnr.:
Frisch prosjekt: 1132 - Labour force participation among the elderly and the finances of the pension system
Oppdragsgiver: Norges forskningsråd
Oppdragsgivers prosjektnr.:
Frisch prosjekt: 1133 - Working life and welfare of the elderly
