by Eric French (Chicago Fed); 7 October 2009, h 12:00
Collegio Carlo Alberto, Sala Rossa
jointly organized by CeRP and Collegio Carlo Alberto
Abstract
This paper provides an empirical analysis of the effects of employer-provided health insurance, Medicare, and Social Security on retirement behavior. Using data from the Health and Retirement Study, we estimate the first dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that uncertainty and saving are both important for understanding the labor supply responses to Medicare. Furthermore, we find evidence that individuals with stronger preferences for leisure self-select into jobs that provide post-retirement health insurance coverage. Properly accounting for this self-selection reduces the estimated effect of Medicare on retirement behavior. Nevertheless, we find that health insurance is an important determinant of retirement—the labor supply responses to the Medicare eligibility age are as large as the responses to the Social Security normal retirement age.
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