Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany

Hendrik Jürges, Lars Thiel, Tabea Bucher-Koenen, Johannes Rausch, Morten Schuth, Axel Börsch-Supan

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Chapter in forthcoming NBER book Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, David A. Wise, editor
Conference held September 26-28, 2013
Forthcoming from University of Chicago Press
in NBER Book Series - International Social Security

About 20% of German workers retire on disability pensions. Disability pensions provide fairly generous benefits for those who are not already age-eligible for an old-age pension and who are deemed unable to work for health reasons. In this paper, we use two sets of individual survey data to study the role of health and financial incentives in early retirement decisions in Germany, in particular disability benefit uptake. We show that financial incentives to retire do affect sick individuals at least as much as healthy individuals. Based on 25 years of individual survey data and empirical models of retirement behavior, we then simulate changes in the generosity of disability pensions to understand how these changes would affect retirement behavior. Our results show that making the disability benefit award process more stringent without closing other early retirement routes would not greatly increase labor force participation in old age.

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This paper was revised on April 10, 2014

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This chapter first appeared as NBER working paper w19889, Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany, Hendrik Juerges, Lars Thiel, Tabea Bucher-Koenen, Johannes Rausch, Morten Schuth, Axel Boersch-Supan
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