Panel Paper: To Work or Not to Work? the Impact of Pension Reforms on Health Inequality

Monday, June 13, 2016 : 11:50 AM
Clement House, 2nd Floor, Room 05 (London School of Economics)

*Names in bold indicate Presenter

Chiara Ardito1,2, Roberto Leombruni2 and Angelo d'Errico3, (1)University College London, (2)University of Torino, (3)Epidemiology Unit ASL TO3, Piedmont Region
In Italy since the 90s a long lasting series of pension reforms were proposed as unavoidable solutions to the unprecedented ageing process faced since the 80s and the excessive generosity of the previous Italian pension system. The study investigates the existence of possible unintended externalities of the Italian pension reform, whose intention was to increase intergenerational fairness and sustainability, but as a result it created an increased health and actuarial inequality on the current generations.

The paper looks at the causal effect of the pension reform on the health of individuals who were forced to stay longer at work, by focusing on several health outcomes (cardiovascular diseases, mortality, disability and sickness absence). The problem of endogeneity of retirement is addressed through an IV identification strategy, exploiting the changes in national pension rules occurred in the Nineties, which increased the retirement age for some cohorts and not for the others. The analysis is based on a large longitudinal administrative data base with rich and details information on career paths, health histories and social security provisions.

The results showed a non-negligible negative effect of rising pension age on cardiovascular diseases and mortality. For a unit increase in the age at retirement, the probability of dying and of developing cardiovascular diseases at 68-70 years old significantly increased by around 2 and 3 percentage points respectively (p<0.01). This translated in a huge relative risk; a person retiring at 63 years later had twice the probability of CVD and death than one retiring at 59. The risk is far to be homogenous among individuals, as blue collar, low wage earners and workers exposed to a more intense working career were the groups driving the results and suffering the highest price of being obliged to stay longer at work. The unequal health deterioration across socio-economic groups not only consolidates the social gradient in health, but also contributes to transfer the lifetime resources from the “disadvantaged” people to the “advantaged”. Indeed, those working in better conditions, not only received higher wages during their employment, but also higher pension benefits while in retirement and for longer time, due to their higher (and healthier) life expectancy.

Results were robust to several robustness checks run on a subsample of cohorts, the inclusion of controls for prior career and health characteristics and to different model specifications.

The analysis is to be extended to determine if other possible negative externalities may have resulted to the pension reforms, i.e. a rise in sickness absenteeism, unemployment and disability insurance rolls.

JEL classification:  I14 J14 J26 C26

Keywords: Retirement, Ageing, Health, Instrumental variable, Mortality