Health and Work Capacity of Older Adults: Estimates and Implications for Social Security Policy

Abstract

The simultaneous growth in longevity and mounting budget deficits in the U.S. have increased interest in raising the age of eligibility for public health and retirement benefits. The consequences of this policy depend on the health of the near elderly, and on the distribution of health by demographic group. We simulate the work capacity and likely disability experience of near elderly individuals (62-64 year-olds) based on the work, disability, and retirement status of slightly younger people. Our estimates, from two distinct data sets, indicate that work capacity is substantial at this age. Because health deteriorates very slowly from ages 60-65, labor force participation could rise by 15-20 percent for all demographic groups, while overall disability rates would change very little. However, less advantaged groups would face challenges in the labor market. The expected earnings of current non-workers without any college education are lower than similar workers, by 15 to 25 percent, indicating the uneven burden of changes in the age of eligibility.