Author: Bound, John; Stinebrickner, Todd ; Waidmann, Timothy
Working Paper : Using a Structural Retirement Model to Simulate the Effect of Changes to the OASDI and Medicare Programs (PDF); July 2005
Research Description:
In this paper, we specify a dynamic programming model that addresses the interplay among
health, financial resources, and the labor market behavior of men in the later part of their
working lives. Unlike previous work which has typically used self reported health of disability
status as a proxy for health status, we model health as a latent variable, using self reported
disability status as an indicator of this latent construct. Our model is explicitly designed to
account for the possibility that the reporting of disability may be endogenous to the labor
market behavior we are studying. The model is estimated using data from the Health and
Retirement Study. We compare results based on our model to results based on models that treat
in the typical way, and find large differences in the estimated effect of health on behavior.
While estimates based on our model suggest that health has a large impact on behavior, the
estimates suggest a substantially smaller role for health than we find when using standard
techniques. We use our model to simulate the impact on behavior of raising the normal
retirement age, eliminating early retirement altogether, eliminating the Social Security
Disability Insurance program and We use the model to simulate the impact on behavior of
raising the normal retirement age, eliminating early retirement altogether and introducing
universal health insurance. |
