Dynamic Programming Model of Health and Retirement

Fedor Iskhakov

No 03/2008, Memorandum from Oslo University, Department of Economics

Abstract: A structural dynamic programming model is applied for modeling labour market transitions among older age workers in Norway in 1992-2003. Special attention is given to early retirement pensiion and disability pension as two major exit routes from the labour force. Health status is represented by a latent variable reflecting the eligibility for participating in disability programs. Incomplete information maximum likelihood method is used in several stages to facilitate the estimation. The model is used to investigate the degree of potential substitution of the early retirement and retirement through the disability insurance scheme. Estimates of the structural parameters of the concealed health process allow for forecasting the individual "eligibility" for the disability and thus facilitate the assessment of the potential substitution between the two exit routes from the labour force. Performed policy simulation of the complete elimination of the early retirement program indicates nearly complete return of th otherwise early pensioners back to the labour market.

Keywords: Retirement; health; early retirement; disability; labour market transitions; structural dynamic model; dynamic programming (search for similar items in EconPapers)
JEL-codes: C61 I10 J22 J26 (search for similar items in EconPapers)
Pages: 119 pages
Date: 2008-02-01
New Economics Papers: this item is included in nep-age, nep-hea and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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