Occupational-Based Effects of Retirement on Health

Abstract: Many European countries have recently decided to increase their statutory retirement ages because the demographic change poses a challenge to the stability of social security systems. The success of this policy depends among others on the health effect of such a delayed retirement. This study analyzes the effect of retirement on mental and physical health and further examines whether the health effect depends on the type of occupation. For this purpose, a cross-country analysis is applied on the basis of the Survey of Health, Ageing and Retirement in Europe (SHARE) dataset. To control for endogeneity, country-specific eligibility ages for early and full retirement are used for an instrumental variable approach. Overall, the results suggest a health-preserving effect of retirement as indicated by a 12 percent decrease in the likelihood of reporting bad health and by an improvement in a defined health index by a one-quarter standard deviation. Concerning the occupational-based effects of retirement on health, the results are as expected: Retiring from a blue collar occupation has significant positive effects on health whereas retiring from a white collar occupation influences health negatively. The policy implication of these findings is to increase the statutory retirement ages for white collar workers and to implement special pension schemes for blue collar workers which allow them to retire earlier according to the number of years they have been working in a physically harmful occupation.