The Dynamic Effects of Health on the Labor Force Transitions of Older Workers

This paper addresses the interplay between health and labor market behavior in the later part of the working life. The authors use the longitudinal Health and Retirement Survey to analyze the dynamic relationship between health and alternative labor force transitions, including labor force exit, job change and application for disability insurance. Specifically, the authors examine how the timing of health shocks affects labor force behavior. Controlling for lagged values of health, poor contemporaneous health is strongly associated with labor force exit in general and with application for disability insurance in particular. At the same time, our evidence suggests that controlling for contemporaneous health, poor lagged health is associated with continued participation. Thus, it appears that not just poor health, but declines in health help explain retirement behavior. The authors conclude that modeling health in a dynamic, longitudinal framework offers important new insights in the effects of poor health on the labor force behavior of older workers.