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Physical Job Demand and Early Retirement

Physical Job Demand and Early Retirement. Sepideh Modrek & Mark Cullen 14th Annual Joint Conference of the Retirement Research Consortium August 2, 2012. Motivation. New policy initiatives recommend raising the full retirement age (FRA) from 67 to 69*

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Physical Job Demand and Early Retirement

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  1. Physical Job Demand and Early Retirement Sepideh Modrek & Mark Cullen 14th Annual Joint Conference of the Retirement Research Consortium August 2, 2012

  2. Motivation • New policy initiatives recommend raising the full retirement age (FRA) from 67 to 69* • Longevity differentials by SES & occupational class may make such proposals regressive • One particular difference across occupational classes is physical job demand • France raised the FRA from 60 to 62, but included exemptions for physically demanding jobs • Previous studies on physical job demand have some measurement limitations * For example, this was a key recommendation of Obama’s federal-deficit commission (12/1/2010)

  3. Study setting • Ongoing collaboration with a large US aluminum manufacturer, Alcoa • Multiple sources of administrative data resolves issues of self-report • External report of retirement date, health, wages, defined benefits pension eligibility and payouts, 401K accumulation, hospitalization/injuries • Externally rated physical job demand • Higher variation in physical job demand than general public

  4. Comparison of self-reported vs. expert-reported job demand Spearman r = 0.22

  5. Selection into physically demanding jobs • Attraction-selection-attrition cycle • Those who choose to work in high demand jobs are paid more and may have a higher marginal utility for work • Those who choose to work in high demand jobs are healthier and are selected on physical ability

  6. Research questions • Does physical job demand predict earlier retirement once we account for health and wages? • Is pension eligibility more important for those with higher job demand? • Does a health shock induce retirement, especially by job demand?

  7. Study sample (58+) • Reason for leaving Alcoa was only coded between the years 2001-2007 • Male hourly workers born between 1941-1948 working on Jan 1, 1996 at 9 union plants • Must retire after reaching age 58 • Analytic sample has 1500-1700 individuals

  8. Analytic methods • Discrete time analysis • Duration analysis • Descriptive Kaplan-Meier plots • Cox proportional hazards models • Time-varying Cox proportional hazards models • At each birthday a worker’s eligibility for defined benefits pension evaluated • If eligible, pension pay out is calculated (based on job grade, tenure)

  9. Sample characteristics

  10. Kaplan-Meier curves – All – Heavy – Medium– Light Analysis time =0 is at age 58 and data is right censored at 1/1/2001. For those without a retirement date data is left censored at 1/1/2008.

  11. Cox models

  12. Research questions • Does job demand predict earlier retirement once we account for health and wealth? • Is pension eligibility more important for those with higher job demand? • How does a health shock induce retirement, especially by job demand?

  13. Time-varying Cox models

  14. Summary of findings • Workers in higher demand jobs do retire earlier, once we account for wage differentials • The estimated difference is about 6 months • Pension eligibility and pay-outs do not seem to be more important for those with higher job demand • Hospitalizations/injuries do induce retirement, but limited evidence of difference by job demand

  15. Next steps • Refine our models to ensure robustness by adding more time-varying variables (wage) • Examine relationship between physical job demand and disability retirement at a younger age groups (<58)

  16. Policy implications • Depends on policy goal • Macroeconomic goal to increase retirement ages for all and without increasing disability claims • Inform and icentivize employers to support the transition to lower demand jobs while acknowledging the wage incentives for workers to stay in high demand jobs

  17. Policy implications • Depends on policy goal • Goal to reduce or compensate for social disparities

  18. Survival by employee type

  19. Policy implications • Depends on policy goal • Goal to reduce or compensate for social disparities • SSA could consider exemptions for those in high demand fields as it raises FRA to compensate for higher risk endured • Small selected group of workers who are compensated for higher risk, so no social security exemptions required • Depends on whether we believe wages fully compensate for risk

  20. Thank you!

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