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The joint effect of health shocks and eligibility for social security on labor supply

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Abstract

This paper investigates whether or not suffering a health shock, and becoming eligible for social security, have a joint effect on labor supply. Despite millions of people experiencing both of these events each year, no paper has focused exclusively on the joint effect that these events may have on work outcomes. This is surprising given that experiencing a health shock may impact on how a worker responds to becoming eligible for social security. With data from the Health and Retirement Study, I model weekly hours of work as a function of health shocks, social security eligibility, and their interaction. I find that this interaction leads to a 3–4 h reduction in weekly hours of work for men, but has no effect for women. The results are robust to using different work outcomes, age groups, health shock definitions, subgroups, as well as falsification and placebo tests. The results appear to be driven by men who would have had to return to work with impaired health. Policies that promote a more flexible work situation for older men may alleviate these problems in the future.

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Notes

  1. More recently, a new strand of literature has emerged which focuses specifically on the effect of cancer on labor supply. Evidence from the U.S. [27,28,29,30,31,32,33,34,35], Europe [36,37,38,39,40], and elsewhere [41, 42], shows that cancer, like other health shocks, has generally been found to have a negative effect on labor supply.

  2. Coile and Levine [9] interact Social Security eligibility ages (62, 63, and 64) with unemployment insurance, rather than health shocks, but the idea is the same.

  3. In the HRS, the cancer variable is defined as cancer or a malignant tumor of any kind except skin cancer. The heart problem variable is defined as heart attack, coronary heart disease, angina, congestive heart failure, or other heart problems. Stroke is defined as stroke or transient ischemic attack. Lung disease is defined as chronic lung disease except asthma such as chronic bronchitis or emphysema.

  4. The HRS [52] is sponsored by the National Institute on Aging (grant number NIA U01AG009740) and is conducted by the University of Michigan.

  5. This transformation of wealth, W, is \(w = { \ln }\left( {W + \sqrt {W^2+ { 1}} } \right).\)

  6. Finkelstein [53] uses this method with regards to a tax change, rather the Social Security eligibility, but the principle is the same.

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Acknowledgements

I wish to thank Kevin Denny, Christopher Jepsen, Kanika Kapur, Maarten Lindeboom, David Madden, Andrea Weber, two anonymous referees, and seminar participants at the 31st annual European Society for Population Economics and 12th biennial International Health Economics Association conferences for helpful comments.

Funding

This research was funded by the Irish Research Council, who had no involvement in the conduct of the research.

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  1. School of Economics, University of Edinburgh, 30 Buccleuch Place, Edinburgh, EH8 9JT, UK

    David Candon

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Correspondence to David Candon.

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Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Data: The data used in this paper are from the Health and Retirement Study, a publicly available data set. The computer code used to generate the results is available on request.

Previous version: An earlier and less developed version of this manuscript circulated under the title “Are cancer survivors who are eligible for social security more likely to retire than healthy workers? Evidence from difference-in-differences”. It was not presented at any conferences or seminars. A copy can be made available on request.

Appendix

Appendix

See Tables 12, 13, and 14.

Table 12 Sample information
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Table 13 Descriptive statistics (men)
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Table 14 Descriptive statistics (women)
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Candon, D. The joint effect of health shocks and eligibility for social security on labor supply. Eur J Health Econ 20, 969–988 (2019). https://doi.org/10.1007/s10198-019-01053-2

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