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

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Presentation on theme: "Physical Job Demand and Early Retirement Sepideh Modrek & Mark Cullen 14th Annual Joint Conference of the Retirement Research Consortium August 2, 2012."— Presentation transcript:

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 Male hourly workers born between working on Jan 1, 1996 at 9 union plants Must retire after reaching age 58 Analytic sample has 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 MeanSD Mean Age of sample at entry58Married Age at retirement Ever Married 90% Job DemandRace Sedentary/ Light 17% White 89% Medium 53% Health Heavy/Very Heavy 30% Health Score 2000 Q1 19% Job Demand ChangeHealth Score 2000 Q2 21% Transition to lower demand job 8% Health Score 2000 Q3 21% Tenure at entryHealth Score 2000 Q4 21% 0-15 years 7% Health Score 2000 Q5 18% % Injury % Injured within 2 years of retirement 9% % Defined Benefits Pension % Eligibility at time of entry 58% % Defined Contributions Pension Accumulation Wage 401K Participation 86% Final Hourly Wage N=1660

10 Kaplan-Meier curves 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. – Heavy – Medium – Light – All

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 to Retirement (after 1/1/2001) Hazard Ratio (95 % Confidence Interval) Job Demand (omitted JD=3, Medium) Sedentary/Light (JD=1 or 2)0.833*0.787**0.829**0.818** *** ( )( )( )( )( )( ) Heavy/Very Heavy (JD=4 or 5)1.168* 1.169*1.156* ( )( )( )( )( )( ) Changed to lower demand job after 1/1/96 Transitioned to lower demand0.580***0.579***0.585***0.586***0.585***0.583*** ( )( )( )( )( )( ) Hospitalization (time-varying) Hospitalization ( )( )( )( )( )( ) Hospitalization*Low JD 1.628* Hospitalization* High JD( ) Pension (time-varying)( ) Defined Benefits Pension Pension Eligible1.532***1.551***1.569***1.566*** ( )( )( )( ) Eligible*Low JD1.025 ( ) Eligible* High JD0.948 ( ) Defined Contributions 401K Participation0.714***0.713***0.557*** ( )( )( ) Participation*Low JD1.974*** ( ) Participation* High JD1.405* ( ) Observations5189 Unique Workers1488 Birth Cohort FEYES Location FEYES Tenure FEYES Controls for final wage, injury history, race, health risk score in 2000, and ever-married

14 Time-varying Cox models Time to Retirement (after 1/1/2001)Hazard Ratio (95 % Confidence Interval) 1234 Job Demand (omitted JD=3, Medium) Sedentary/Light (JD=1 or 2) ( )( )( )( ) Heavy/Very Heavy (JD=4 or 5) **1.024 ( )( )( )( ) Changed to lower demand job after 1/1/96 Transitioned to lower demand0.695**0.697**0.568***0.566*** ( )( )( )( ) Hospitalization (time-varying) Hospitalization ( )( )( )( ) Pension (time-varying) Defined Benefits Pension Pension Benefits (100$/month)1.516***1.495*** ( )( ) Benefit*Low JD1.02 ( ) Benefit* High JD1.036 ( ) Defined Contributions Annuitized Monthly Values (100$) (3% rate of return for 25 yrs) 1.041***1.026* ( )( ) Annuity*Low JD1.018 ( ) Annuity*High JD1.037 ( ) Observations Unique Workers Birth Cohort FEYES Location FEYES Tenure FEYES Controls for final wage, injury history, race, health risk score in 2000, and ever-married

15 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

16 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)

17 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

18 Policy implications Depends on policy goal – Goal to reduce or compensate for social disparities

19 Survival by employee type

20 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

21 Thank you!


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