The dynamics of health and labour market transitions at older ages: evidence from a multi-state model

Mark Harris, Xueyan Zhao and Eugenio Zucchelli

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: Despite its clear relevance and policy significance, there is still sparse evidence on the effects of ill-health on the dynamics of labour state transitions among older individuals. We provide novel evidence by considering retirement as mobility among full-time work, part-time work, self-employment and inactivity, using a dynamic multinomial choice model that simultaneously accounts for state dependence, individual-level and state-specific unobserved heterogeneity, captivity and correlations between labour market states. We also simulate the dynamic paths for the four labour states from both transitory and permanent health shocks. We find strong state dependence for all four labour states even after accounting for individual effects. Both ill-health and health shocks are found to greatly increase the probability of leaving full-time employment into inactivity, and we find some evidence of part-time and self-employment paths. Significant evidence is found for “captivity†effects for the “inactive†state, and correlations across labour states. We also show that the degree of state dependence is over-estimated and, for men, the effects of ill health under-estimated, if unobserved individual effects are not controlled for in dynamic models.

Keywords: health; dynamic labour transitions; captivity; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C23 I10 J2 J24 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-age, nep-hea and nep-lma
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:yor:hectdg:16/30

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