1. International Differences in Labor Market Status and Transitions During the Pre- Retirement Years James Banks Arie Kapteyn Jim Smith Arthur van Soest

2. MRRC 8/10/06 Motivation and background Aging societies face strong budgetary pressures, but these are much more severe in some countries than in others. The effect of financial incentives is well- documented; we want to stress the effect of disability. Prevalence is only part of the story; we also want to consider dynamics. Institutions matter. How much?

3. MRRC 8/10/06 Preliminary conclusion: Too much dynamics may be bad for your employment

4. MRRC 8/10/06 Data ECHP: annual longitudinal survey of households in the EU. Data collected by national agencies under the supervision and coordination of Eurostat. Started in 1994 and ended in 2001. The first wave covered some 60,500 households and some 130,000 adults aged 16 and above from all countries except Austria, Finland and Sweden. Austria and Finland were added in the second and third waves. As of the fourth (1997) wave, the original ECHP survey was terminated in Germany, Luxembourg, and the UK; comparable data for these countries were obtained from existing national panels. PSID

5. MRRC 8/10/06 Data (2)

6. MRRC 8/10/06 Variable Definitions Disability (PH003A): Are you hampered in your daily activities by any physical or mental health problem, illness or disability? Three point scale (2-point in UK and US) Labor force status (PE001A): –Working 1 working with an employer in paid employment 2 working with an employer in paid apprenticeship 3 working with an employer in training schemes 4 self-employment 5 unpaid work in a family enterprise

7. MRRC 8/10/06 Variable Definitions (2) Health (PH001): How is your health in general? –1 Very good –2 Good –3 Fair –4 Bad –5 Very bad In PSID, the scale is –1 Excellent –2 Very Good –3 Good –4 Fair –5 Poor

8. MRRC 8/10/06 Self-reported Health and Disability (men)

9. MRRC 8/10/06 Labor Market Status by Disability (men)

10. MRRC 8/10/06 There is clearly a large variation in self reported disability and in the employment rate of those who report to have a work limiting health condition. Where does this variation come from and how can we explain the variation as a result of different dynamic processes?

11. MRRC 8/10/06 We estimate dynamic models for 14 countries One equation explains current disability based on health, demographics, past disability and past work The second equation explains whether one works or not based on health, demographics, current and past disability, and past work. I will not present model estimates, but just some simulations

12. MRRC 8/10/06 Disability Dynamics, France

13. MRRC 8/10/06 Work Dynamics, France

14. MRRC 8/10/06 Work and Disability Dynamics, France

15. MRRC 8/10/06 Work and Disability Dynamics, Germany

16. MRRC 8/10/06 Work and Disability Dynamics, UK

17. MRRC 8/10/06 Work and Disability Dynamics, Austria

18. MRRC 8/10/06 So? Using US coefficients rarely raises disability, and often lowers it. However, this does not lead to higher employment rates when using US coefficients. In a number of countries it would imply substantially lower employment rates. Why is that? For work, we always see more turnover when we apply US coefficients to the EU countries. But the inflow into work goes up less than the outflow out of work. So on net, it tends to lower employment.

19. MRRC 8/10/06 How about within Europe?

20. MRRC 8/10/06 How countries rank on transition from work to non-work Germany, Spain (.09) Ireland, Finland Greece, UK (.07) Austria, Denmark, France, Italy, Netherlands, Portugal (.06) Belgium (.05) So: little variation

21. MRRC 8/10/06 How countries rank on transition from non-work to work UK (.22) Denmark (.21) Finland (.20) Portugal (.15) Germany, Spain (.14) Netherlands (.13) Ireland (.12) Austria, France, Greece (.11) Italy (.09) Belgium (.07) A lot more variation

22. MRRC 8/10/06 So the variation across European countries is mainly a result of how successful they are in inducing inflow into work.

23. MRRC 8/10/06 Concluding Remarks Self-reported disabilities vary considerably across countries, and so do employment rates. There is little variation in flows out of work; but a lot in flows into work. When we impose U.S. dynamics on European countries, we see more turnover, particularly out of work. In some countries this would reduce the percentage of individuals working.