Live longer, work longer? An application of the ‘health capacity to work’ method on Danish data

Publicly funded pension systems are facing the challenge to remain financially sustainable without lowering pensions. Raising the statutory retirement age gradually in line with the increase in life expectancy has been a key measure to solve the problem. The implicit assumption is that the additional years of life are lived in good health, or as a minimum that health status in the added years is compatible with work. However, there is a risk that postponement of the statutory retirement age will not be successful as some individuals may not have the ability to work. Furthermore, a uniform retirement age ignores the different exposures to morbidity and mortality risks across social groups. Consequently, it is important to examine whether the health of the elderly will allow them to continue working and whether there is significant heterogeneity in the ability to work. Combining the Survey of Health, Ageing and Retirement in Europe (SHARE) (Börsch-Supan et al., 2013) with data from the Danish registers enable us to create a composite health index that includes an extensive range of health indicators. Utilising the Cutler et al. (2013) method, we are able to estimate the health capacity to work among Danes aged 55 and above. We decompose health capacity into physical and mental health as well as subjective and objective health. We investigate heterogeneity in health capacity across educational and occupational attainment. Substantial additional work capacity is found for older Danes aged 55 and above. Depending on the type of health index applied, the health capacity to work varies. There is evidence of a clear socio-economic gradient in work capacity. Results thereby show that policies that intend to utilise the additional work capacity should take heterogeneity in health into consideration.

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