The Dynamic Effects of Health on the Labor Force Transitions of Older Workers

This article analyzes the relationship between health and alternative labor force transitions, including labor force exit, job change, and application for disability insurance. Health is a very significant determinant of labor force patterns. Controlling for lagged values of health, poor contemporaneous health is strongly related to older men and women's exit from the labor force and their decisions to apply for disability insurance. Controlling for poor contemporaneous health, poor lagged health is associated with continued participation in the work force. The earlier a health shock occurs, the less likely it is to lead to labor force exit. People who experience health setbacks earlier in life tend to switch jobs instead of stopping to work. Results suggest that both poor health and declines in health are significant variables that help to explain retirement behavior.