The puzzle of older workers’ employment: distance to retirement and health effects

Abstract

Purpose The purpose of this paper is to investigate the extent to which the distance to retirement affects low employment rates among European older workers, taking into account a key but often neglected determinant: health status. Design/methodology/approach To begin, the study amends McCall’s job search model, in which the job search behavior is treated as age dependent. Agents are heterogeneous according to two attributes: distance to retirement and health. The authors complete this theoretical analysis with an econometric analysis based on a French survey. Findings This model leads to clear predictions, such that the closer the retirement, the greater the reservation wage and the lower people’s search effort. Older workers also exhibit lower exit rates from unemployment, an effect that gets enhanced by health problems. The empirical work, based on a French survey, confirms the existence of a distance effect but also puts the greater impact of health status into perspective. The distance effect explains only part of the puzzle of older workers’ employment. Originality/value This paper proposes a theoretical and empirical analysis of the retirement decisions. It studies the distance effect but taking into account a neglected factor in the literature: health. Results clearly confirm the distance effect but highlight the reader role of health in retirement decisions.