Public programs such as Social Security and Medicare might change in ways that reflect popular beliefs that people will work beyond traditional retirement ages of 65 or 67. But a paper from the National Bureau of Economic Research (NBER) sets out to analyze whether older Americans actually have the health capacity to work longer.
To put it bluntly, are older workers healthy enough to retire later? “Health Capacity to Work at Older Ages: Evidence from the U.S.” uses two methods to assess capacity to work at older ages. The first asks: if people with a given mortality rate today were to work as much as people with the same mortality rate worked in the past, how much could they work?
The paper’s authors make two calculations based on plots of the relationship between employment and mortality over time, using data from Current Population Survey and the Human Mortality Database from 1977 to 2010. They focused on men, as sharply increasing rates of women’s labor force participation over time make it difficult to interpret the results for women.
The second method asks: if people with a given level of health were to work as much as their younger counterparts in similar health, how much could they work?
The method is built on research that explores the ability of workers just over the age of 62—the Social Security Early Eligibility Age (EEA)—to work, based on the relationship between health and retirement or disability status for slightly younger workers, those age 57 to 61.
They used data from the Health and Retirement Study (HRS) to estimate the relationship between health and employment for a sample of younger males and females, age 51 to 54.
They use those estimates along with the actual characteristics of older individuals, age 55 to 74, to project the latter’s capacity to work based on health.NEXT: What part does education play in health and retirement?
They also explore whether health capacity to work varies by education group, as averages for the population as a whole may mask substantial heterogeneity in workers’ ability to extend their work lives.
They explored how self-assessed health, a broad summary measure of health, has evolved over time by education. One challenge with such an analysis is that average levels of education are rising over time. Relying on fixed education categories, such as high school dropout, may be problematic when the share of the population in this category is changing substantially. They overcome this challenge by creating education quartiles and exploring how health by education quartile has changed over time.
Their central finding is that both methods suggest significant additional health capacity to work at older ages. They estimated that men would work an average of 4.2 additional years between the ages of 55 and 69 if the employment mortality relationship that existed in 1977 were in effect today. This is an increase of more than 50% relative to the average 7.9 years currently worked in this age range.
This estimate reflects substantially higher employment—16 percentage points higher at ages 55 to 59, 27 points at ages 60 to 64, and 42 points at ages 65 to 69—relative to actual 2010 employment rates. Results using this method depend on the base year used for comparison, as both employment and mortality are changing over time—for example, estimated additional work capacity is 1.8 years when using 1995 (roughly the trough of employment in recent years) as the base year.
In interpreting these results, they caution that this method implicitly assumes that all gains in life expectancy can translate into longer work lives. If one instead uses the NCFRR’s logic that a year of additional life expectancy might translate into eight additional months of work and four additional months of retirement, for example, these values could be multiplied by two-thirds.
The paper can be downloaded free of charge online.