Subjective Health Assessments And Active Labor Market Participation Of Older Men: Evidence From A Semiparametric Binary Choice Model With Nonadditive Correlated Individual-Specific Effects

We use panel data from the U.S. Health and Retirement Study, 1992-2002, to estimate the effect of self-assessed health limitations on the active labor market participation of older men. Self-assessments of health are likely to be endogenous to labor supply due to justification bias and individual-specific heterogeneity in subjective evaluations. We address both concerns. We propose a semiparametric binary choice procedure that incorporates nonadditive correlated individual-specific effects. Our estimation strategy identifies and estimates the average partial effects of health and functioning on labor market participation. The results indicate that poor health plays a major role in labor market exit decisions. PUBLICATION ABSTRACT