Can Health Explain Differences in Employment of Older Men Across Countries?

Featured in print Bulletin on Aging & Health

Employment rates of older men vary substantially across developed countries. In 2007, for example, the share of men aged 60-64 who worked ranged from nearly three-quarters in Japan to less than a quarter in France and Belgium. Employment rates have also changed over time within countries, sometimes quite dramatically.

Differences in health may explain some of these differences in employment across countries and over time, as better health may increase the productive capacity of older persons, which may then be translated into increased work. This possibility is explored in a new study by researchers Kevin Milligan and David Wise, Health and Work at Older Ages: Using Mortality to Assess Employment Capacity Across Countries (NBER Working paper 18229).

In their analysis, the authors focus on mortality as a key indicator of health and the capacity to work at older ages. This approach has significant advantages - mortality data is available over long periods of time for the 12 OECD countries included in the study, and the clarity of its definition ensures that data are comparable across countries. Of course, focusing on mortality may miss more subtle health changes that could affect work capacity, such as physical or mental impairment. However, the authors show that there is a strong relationship within each country between changes in self-reported health and changes in mortality over time.

The authors begin by documenting trends in mortality over time. Over the past fifty years, all countries in the study experienced significant improvements in mortality at older ages, with some tendency towards con-vergence. Within each country, the authors ask at what age in 2007 was the death rate the same as it was for 60-year-olds in 1957. In the U.S., this value was 69.6, indicating that a U.S. man in 2007 at age 69.6 "feels like" a man at age 60 in 1957 in terms of his mortality risk. The "mortality years" gained over the past half-century range from 4.6 to 12.0 in the countries studied.

Turning to trends in employment, the labor force participation of older men generally fell over the 2nd half of the twentieth century before bottoming out in the mid-1990s and beginning to rise again. There are significant differences across countries in both the level of employment and the changes in employment over time - for example, the minimum employment rate for 60-to-64 year olds was about 50 percent in the U.S., versus 60 percent in Japan and 10 percent in France. The study focuses on men's labor force participation because steady growth in the female work force during this period complicates any attempt to explore the relationship between health and work.

Finally, the authors turn to their question of interest, whether there is any association between changes in mortality and changes in employment over time for the 12 countries in their sample. They find little evidence of a relationship, leading them to conclude: "it appears that the extra productive capacity indicated by reduced mortality is unrelated to changes in employment."

Another way to examine this question is to look at the employment rate at each level of mortality. At low levels of mortality, such as 0.005, there is little difference across countries in the employment rate, with 85 to 90 percent of men working. As mortality increases, employment rates diverge substantially - for example, at a 0.015 mortality rate, only about 5 percent of the work force is employed in France, versus nearly 50 percent in the U.S. This suggests that there are substantial differences in employment that cannot be explained by differences in health (as measured by mortality). Repeating this analysis for a single country at different points in time yields similar results - in the U.S., at a 0.015 mortality rate, 80 percent of men were working in 1977, versus only 50 percent in 2007.

Finally, one can calculate the potential gain in employment if employees worked as much as did workers with the same mortality risk in a different country or year. Over the ages of 55 to 69, French workers in 2007 would have worked a total of 4.6 additional years if they worked as much as did U.S. workers with the same mortality risk. Similarly, U.S. workers in 2007 would have worked 3.6 additional years (or nearly 50% more, relative to an average of 7.9 years worked over ages 55 to 69) if they worked as much as did U.S. workers in 1977 with the same mortality risk.

What can explain the large cross-country differences in labor force participation by older workers, if not differences in health? Reprising some of their earlier work as part of the NBER's International Social Security Project, the authors show that there is a strong positive relationship between the extent to which a country's public pension system discourages additional work and the share of the population within a given age range (55 to 65) or at a given level of mortality risk (0.015 percent) that is out of the work force. The authors conclude "our findings suggest that large differences in employment at older ages persist across countries given similar health levels, providing substantial scope for policy to influence work decisions."

The authors acknowledge funding from the Sloane Foundation.