In the preceding chapter, the basic labor supply model was described as it relates to older workers. We focused our review on the impact of the public and private pension systems on the retirement decision. There are, however, a variety of personal and market characteristics that have been employed to examine labor-force withdrawal by the elderly. In this chapter, the effects of health impairments on the labor supply of older workers are analyzed in detail. In addition, a series of economy characteristics and other financial variables are reviewed. We conclude this section with our assessment of the factors influencing the retirement decision.

Health

Health impairments may reduce a worker's productivity and therefore, the market wage rate that he is offered. In addition, such impairments could be expected to increase the onerousness of work, thus affecting the individual's desire for nonmarket time. The likely result is that fewer individuals with health limitations would choose to be in the labor force than workers without ailments. Therefore, on an individual basis, health status can be expected to pay an important role in the retirement decision. However, for health to be a significant explanatory factor in the steady decline in the labor-force participation of older men, one must hypothesize a continuing depreciation of the health of the elderly.

A significant empirical problem is the lack of adequate objective data on the health status of individuals. The use of survey responses may be biased as the respondent attempts to provide a socially acceptable reason for retirement.