Reading Passage 8

You should spend 20 minutes on questions 1-14, which are based on Reading Passage 8.

How can retirement affect health?

This analysis raises an important question: is the decreased labour force participation rate partly responsible for the improvements in general health? This question is important. If a longer working life induces health deterioration, then a policy of trying to encourage people to work longer will be much less attractive. Furthermore, since healthcare is mostly publicly funded in the UK, a decline in health as a result of policies that induce longer working lives may lead to increases in health spending. At the same time, of course, such policies would also produce more suffering among the elderly, who would pay for their labour force participation with poorer health.

On the other hand, it is also possible that retirement may be to the detriment of health, so policies to induce longer working lives could, in fact, produce even better improvements in life expectancy and healthy life expectancy. In fact, Milligan and Wise (2012) find little relationship between mortality and employment rates at the country level. For any given mortality rate, the employment rate among older men varies significantly across countries, and changes in mortality within countries are weak predictors of changes in employment rates of older men. However, mortality is a rather crude measure of health. Secondly, it is not necessarily the case that the apparently non-existent relationship between employment and health holds up in microlevel analyses. Indeed, the evidence clearly suggests deteriorations in health-induced retirement at the individual level in the British context (Disney et al, 2006).

Theoretically, the impact of retirement on health is far from certain. According to the human capital model of Grossman (2000), good health is crucial for allowing individuals to maximize their utility. Health has an impact on utility directly through its effect on people's life satisfaction and happiness while also reducing work-related illness which, in turn, allows people to raise their total earnings. The former mechanism may lead people to invest more in their health after retirement - since they have more time to enjoy their leisure activities whereas the latter mechanism may lead them to invest less, since they no longer have a job with which to increase their earnings. Whether incentives to invest in health increase or decrease after retirement depends on whether the marginal benefit of better health is higher or lower compared with before retirement, and there is no straightforward correct answer regarding which scenario is correct (Dave et al, 2006). Additionally, it is important to note that health investments may change prior to retirement, since individuals engage in retirement planning, the effects of which may kick in once they have retired. Also it should be noted that investment in health may not be primarily monetary investments. They can include making changes to diet, developing a daily exercise routine, and so on.

Other mechanisms by which retirement can affect health appear equally ambiguous. The social capital literature", for example, indicates beneficial effects of trust and social interactions on health (for example, see Petrou and Kupek, 2008; d'Hombres et al, 2010, Ronconi et al, 2012). It is plausible that retirement can reduce social networks if these mostly stemmed from a person's job. However, the retired also have more leisure time, which can be used to establish new social contacts outside work. Additionally, retired people have more time to devote to voluntary work, which is also a base from which new contacts can be established.

Equally, while stress is clearly detrimental to health, the impact of retirement on stress is also not clear-cut. Retirement is an important life event that can be very stressful, but it can also decrease work-related pressure. The same applies for physical exercise. Some people get most of their exercise from work, whereas retirement may allow others to exercise more on a voluntary basis. Indeed, the impact of retirement on exercise appears to vary depending on the type of people and the type of job from which they exit (Chung et al, 2009; Kuvaja-Köllner et al, 2012).

Another mechanism by which retirement affects health is through what is termed the 'income effect'. When people retire, they are likely to see a drop in their income. This, in turn, might affect their health negatively.

Furthermore, it is important to note that the health impact of retirement is not necessarily linear: immediate and short-term effects may differ significantly from medium and long-term impacts. The mechanisms linking retirement to health can involve very long delays. It is clearly plausible that the longer-term health effects of retirement can differ significantly from the short-term impact. For example, the reduction in stress may have a beneficial short-term impact but the reduced social contact may have a detrimental longer-term impact.

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* social capital - a network of beneficial social connections