The unexpected impact of health on the labor supply of the oldest Americans

Abstract

Since many workers who retire early do so because of health considerations, one would think that those who continue to work after the traditional retirement age of 65 enjoy good health. By extension, it seems obvious that the elderly who spend the most time working for pay would be in the best health. However, at a time when many in this age group rely on expensive Pharmaceuticals not covered by Medicare, one important consideration is whether these individuals have some form of supplementary insurance to assist with these and other outofpocket medical expenses. The AHEAD (Asset and Health Dynamics Among the Oldest Old) data set is used to test the hypothesis that elderly working Americans in belowaverage health spend more hours engaged in market work. This result is consistent with the possibility that they do so in order to gain access to employer-provided health insurance or to pay high outofpocket medical expenses. A labor supply analysis, performed using a multistage Heckit procedure, reveals that women are particularly vulnerable: Those in poor or only fair health, those need-ing assistance with one or more Activities of Daily Living, and those with higher medical expenses tend to work significantly more hours than do those in better physical condition, as do men without pensions who presumably lack retiree health benefits.