The joint effect of health shocks and eligibility for social security on labor supply.

Abstract

This paper investigates whether or not suffering a health shock, and becoming eligible for social security, have a joint effect on labor supply. Despite millions of people experiencing both of these events each year, no paper has focused exclusively on the joint effect that these events may have on work outcomes. This is surprising given that experiencing a health shock may impact on how a worker responds to becoming eligible for social security. With data from the Health and Retirement Study, I model weekly hours of work as a function of health shocks, social security eligibility, and their interaction. I find that this interaction leads to a 3-4h reduction in weekly hours of work for men, but has no effect for women. The results are robust to using different work outcomes, age groups, health shock definitions, subgroups, as well as falsification and placebo tests. The results appear to be driven by men who would have had to return to work with impaired health. Policies that promote a more flexible work situation for older men may alleviate these problems in the future.