Francesca Salvati from University of Essex will present her paper entitled "Health Inequality, Labor Supply and Retirement Policies” on Wednesday, 7th of December at 17.45. The seminar will be online at the following link
Health Inequality, Labor Supply and Retirement Policies
The interactions between health and labor market outcomes are especially meaningful around retirement age, when health deterioration speeds up. These interactions go in two directions: health problems reduce productivity and labor supply, but working may also directly affect health. These two-way effects may be heterogeneous and particularly relevant for workers who are already in poor health. In this paper, I study the dynamic, two-way relationship between health and labor market outcomes of women at older ages. I develop and estimate a dynamic model of labor supply, health, and savings. The model allows for feedback effects of employment on health, and for these to depend on worker health and education. To estimate the model, I exploit a unique reform that raised women's age of eligibility for state pensions in the United Kingdom. I find that working negatively affects health, more so for low educated women already in poor health. Labor supply responses to health shocks and earnings shocks are substantial, particularly for low educated women in poor health. I use this framework to evaluate a policy that raises the retirement age of women. The effects of raising the retirement age are heterogeneous across the health distribution and widen inequality in health. Low educated women in poor health bear greater costs from the reform. These women cannot afford to retire in the absence of retirement benefits, but working for them is more costly and damages their already poor health.