Health and labour force participation of older people in Europe: What do objective health indicators add to the analysis?

Abstract

This paper studies labour force participation of older individuals in 11 European countries. The data are drawn from the new Survey of Health, Ageing and Retirement in Europe (SHARE). We examine the value added of objective health indicators in relation to potentially endogenous self-reported health. We approach the endogeneity of self-reported health as an omitted variables problem. In line with the literature on the reliability of self-reported health ambiguous results are obtained. In some countries self-reported health does a fairly good job and controlling for objective health indicators does not add much to the analysis. In other countries, however, the results show that objective health indicators add significantly to the analysis and that self-reported health is endogenous due to omitted objective health indicators. These latter results illustrate the multi-dimensional nature of health and the need to control for objective health indicators when analysing the relation between health status and labour force participation. This makes an instrumental variables approach to deal with the endogeneity of self-reported health less appropriate.