Kiel Working Papers, Kiel Institute for World Economics
No 1415:
The Social Costs of Health-related Early Retirement in Germany: Evidence from the German Socio-economic Panel
Gisela Hostenkamp and Michael Stolpe
Abstract: This study investigates the role of stratification of
health and income in the social cost of health-related early retirement, as
evidenced in the German Socio-economic Panel (GSOEP). We interpret early
retirement as a mechanism to limit work-related declines in health that
allows poorer and less healthy workers to maximize the total discounted
value of annuities received from Germany’s pay-as-you-go pension system.
Investments in new medical technology and better access to existing health
services may help to curb the need for early retirement and thus improve
efficiency, especially amid population ageing. To value the potential
gains, we calibrate an intertemporal model based on ex post predictions
from stratified duration regressions for individual retirement timing. We
conclude that eliminating the correlation between income and health decline
would delay the average age of retirement by approximately half a year,
while keeping all workers in the highest of five categories of self
assessed health would yield a further delay of up to three years. Had this
scenario been realized during our 1992–2005 sample period, we estimate the
social costs of early retirement would have been more than 20 percent
lower, even without counting the direct social benefits from better
health
Keywords: Retirement timing, Health inequality, Social costs, Medical technology, Calibration; (follow links to similar papers)
JEL-Codes: H55,; I12,; O15; (follow links to similar papers)
33 pages, April 2008
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