Abstract
AbstractHealth and employment are strongly correlated. This paper reviews the existing evidence and brings in new evidence on the following issues: (a) the measurement of health; (b) the impact of health on employment rather than just the association between health and employment; (c) the mechanisms by which health impacts employment; and (d) the likely effect of recent retirement and disability policy changes in the UK. Although the magnitude of the estimated effect of health on employment varies greatly from study to study, some of this variation is driven by the health measure used. Given our preferred measure, the evidence suggests that 5–10 per cent of the employment decline between ages 50 and 70 is due to declining health in England, with the largest effects among low‐educated men. Most of the effect comes through declining preferences for work and lower productivity when in bad health, although some of the effect is from government‐provided incentives to not work when in bad health, such as from disability benefits.
Highlights
Those in poor health are much less likely to be working than those in good health
The concern for policy is that this group might be adversely affected by the increase in state pension age, as their health is too bad for them to carry on working in the industry that they know and in which they have built up contacts, but not bad enough for them to qualify for incapacity benefits
This paper surveys the literature on the relationship between health and employment, discusses in detail the pathways through which health affects employment, and considers the policy environment in the UK, drawing on the empirical evidence and economic theory
Summary
Those in poor health are much less likely to be working than those in good health. In data from the English Longitudinal Study of Ageing (ELSA), those aged 50–60 who report that their health limits their ability to work have employment rates that are 44 percentage points lower than those who do not. Disability benefits and state pensions were implemented to insure individuals against the risk of health declines that accompany old age These reforms run the risk of reducing benefits for those who need them with little labour supply response if most of those receiving benefits are too ill to work. The share of people who self-report work limitations only rises from 19 per cent to 33 per cent between ages 50 and 70 These estimates do not tell us the channels through which health impacts employment, which might be important to understand in a changing policy environment. Drawing on the evidence on the importance of health for employment and the channels through which the effect occurs, we discuss the key policy issues in this area that are currently relevant in the UK – namely, the increase in the state pension age and the design of disability insurance.
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