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Latent Work Capacity and Retirement Expectations

Author

Listed:
  • Italo Lopez Garcia

    (RAND)

  • Nicole Maestas

    (Harvard Medical School and NBER)

  • Kathleen J. Mullen

    (RAND)

Abstract
Understanding how health decline influences retirement decisions is fundamental for the design of targeted policies that encourage working longer. While there is wide agreement on the relevance of age-related health decline for determining labor supply and retirement decisions, the process of how health deterioration affects labor supply remains a black box. This paper explores the match between individuals’ functional abilities and job demands in the national economy using a new methodology to measure work capacity. Specifically, we construct a one-dimensional measure of individuals’ work capacities by comparing an individual’s own ability levels to the levels needed to perform different occupations, using new data containing individuals’ ratings of the same 52 abilities included in the Occupational Information Network (O*NET) database. We find that a one-unit increase in the fraction of jobs for a given education level that an individual can do — our measure of work capacity — is associated with a 15 to 21 percentage point increase in labor force participation, a 10 to 17 percentage point decrease in the percentage of respondents receiving SSDI benefits, a 7 to 10 percentage point increase in the subjective percent chance individuals will work longer, a 9 to 12 percentage point increase in the chance that retired individuals will return to the labor force, and a 17 to 25 percentage point increase in the chance that individuals with disabilities will return to the labor force. The magnitudes of these associations are all economically relevant and exist even when controlling for health status.

Suggested Citation

  • Italo Lopez Garcia & Nicole Maestas & Kathleen J. Mullen, 2019. "Latent Work Capacity and Retirement Expectations," Working Papers wp400, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp400
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    File URL: https://mrdrc.isr.umich.edu/publications/papers/pdf/wp400.pdf
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    References listed on IDEAS

    as
    1. Kathleen McGarry, 2004. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
    2. Börsch-Supan, Axel & Weiss, Matthias, 2016. "Productivity and age: Evidence from work teams at the assembly line," The Journal of the Economics of Ageing, Elsevier, vol. 7(C), pages 30-42.
    3. Courtney Coile & Kevin Milligan & David A. Wise, 2017. "Health Capacity to Work at Older Ages: Evidence from the United States," NBER Chapters, in: Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages, pages 359-394, National Bureau of Economic Research, Inc.
    4. Anek Belbase & Geoffrey T. Sanzenbacher & Christopher M. Gillis, 2015. "Does Age-Related Decline in Ability Correspond with Retirement Age?," Working Papers, Center for Retirement Research at Boston College wp2015-24, Center for Retirement Research.
    5. Nicole Maestas & Kathleen J. Mullen & David Powell, 2023. "The Effect of Population Aging on Economic Growth, the Labor Force, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 306-332, April.
    6. David A. Wise, 2017. "Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages," NBER Books, National Bureau of Economic Research, Inc, number wise-22.
    7. Courtney Coile & Kevin Milligan & David A. Wise, 2017. "Introduction to "Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages"," NBER Chapters, in: Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages, pages 1-33, National Bureau of Economic Research, Inc.
    8. James W. Vaupel, 2010. "Biodemography of human ageing," Nature, Nature, vol. 464(7288), pages 536-542, March.
    9. Gary Burtless, 2013. "The Impact of Population Aging and Delayed Retirement on Workforce Productivity," Working Papers, Center for Retirement Research at Boston College wp2013-11, Center for Retirement Research.
    10. Michael D. Hurd, 2009. "Subjective Probabilities in Household Surveys," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 543-564, May.
    11. Nicole Maestas & Kathleen J. Mullen & David Powell, 2016. "The Effect of Population Aging on Economic Growth, the Labor Force and Productivity," NBER Working Papers 22452, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Rahi Abouk & Keshar M. Ghimire & Johanna Catherine Maclean & David Powell, 2023. "Pain Management and Work Capacity: Evidence From Workers’ Compensation and Marijuana Legalization," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(3), pages 737-770, June.
    2. Benjamin Berger & Italo Lopez Garcia & Nicole Maestas & Kathleen J. Mullen, 2022. "The Link between Health and Working Longer: Disparities in Work Capacity," NBER Working Papers 30036, National Bureau of Economic Research, Inc.

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