e-mail: laeticia@nepo.unicamp.br Bernardo L. Queiroz Department of - PDF document

TRENDS IN HEALTH AND RETIREMENT IN LATIN AMERICA: ARE THE ELDERLY HEALTHY ENOUGH TO EXTEND THEIR WORKING LIVES? Laetícia R. de Souza Population Studies Center “Elza Berquó” – University of Campinas e-mail: laeticia@nepo.unicamp.br Bernardo L. Queiroz Department of Demography – Universidade Federal de Minas Gerais e-mail: lanza@cedeplar.ufmg.br Vegard Skirbekk Norway Institute of Public Health and Columbia Aging Center, Columbia University e-mail: mailto:Vegard.Skirbekk@fhi.no As national populations age, a central policy recommendation for many years have been to raise labor force participation among older individuals, thereby mitigating some of the effects of population aging on public expenditures. However, in spite of intentions, life expectancy increase in many ageing economies has in recent decades been accompanied by a decline in the labor force participation of older workers. Reforms intended to raise retirement ages in ageing economies could potentially be challenged by age-related declines in health of those subject to the reforms. As Latin America experiences substantial ageing following rapid decreases in both mortality and fertility rates, in this paper we investigate labor force participation, retirement patterns and health conditions of those aged 50 years and above in Latin America from 1970 to 2010 based on census data from IPUMS. We focus on three health indicators: mortality risks, the overall disease burden and disability rates. Our results reveal, for instance, older men aged 60 to 64 have very similar health patterns compared those aged 55 to 59, but very different patterns of labor force participation. The results indicate that the same health status translates into lower labor force participation today than in the past. Our results indicate a potential to raise retirement ages for an extended working life period, given improvements in health over recent decades. Keywords: Latin America, labor force, retirement, older adults, health JEL: J1, J2, J14, J21, J26 1

1 Introduction Raising retirement ages to maintain economic prosperity and fiscal sustainability is a central political aim in nations undergoing demographic change. We study labour force participation and health trends in several Latin America countries over the last half a century. Understanding retirement patterns is of central importance in order to understand changes and prospects in the overall retirement age. Latin America’s has experienced rapid industrialization along with declining importance of agriculture and primary industries and reductions in employment among the self-employed (Saad, 2011). Ongoing demographic ageing and decreases in retirement ages is causing strain in social security systems in different parts of the world (Bongaarts, 2004). Legislation proposals intended to raise sustainability of social security systems in the wake of demographic change have taken central stage in public policy debates in recent years (Wise, 2004; Bloom and McKinnon, 2010; Hurd and Rohwedder, 2011). Whether one reforms public welfare systems to cope with ageing population structures is key for sustaining public pension systems (Bloom and McNikkon, 2010; Mason, Lee and Lee, 2010). Demographic changes, especially population ageing, will likely influence fiscal balances, sustainability of national health programs and social security systems (Mason, Lee and Lee, 2010, Bloom and McNikkon, 2010). Development in older adults’ labour force participation is central in determining the magnitude of the costs related to ageing (Gruber and Wise, 1999; 2004; Wise, 2010). Studies have revealed a great deal about labour force behaviour and drivers of retirement patterns in developed countries (Coile, 2015; Costa, 1998; Burtless and Quinn, 2001; Hurd and Rohwedder, 2011; Gruber and Wise, 1999; Wise, 2004, Bloom et al. 2009), however, relatively little is known about retirement and health in emerging economies, such as in Latin America (de Carvalho-Filho, 2008; Cotlear, 2011; Finlay and Fink, 2011). Labour force participation decisions among older individuals are strongly affected by the coverage, availability and generosity of public pension systems, which determine whether workers are able to leave paid work and influence the timing and magnitude of labour market exits (Coile, 2015; Hurd and Rohwedder, 2011; Gruber and Wise, 1999; 2004). Profeta (2002) highlights how social security policies and incentives impact on continued work at later ages. 2

Income potential at later ages and whether older individual are offered what they perceive to be sufficiently high wage offers for continuing employment are also a important dimension of retirement decisions (Coile, 2015; Costa, 1998). Health is a further central dimension of employment potential at older ages. Perez et al. (2006) showed that Brazilians in poor health conditions are less likely to participate in the labour force and when they do, the number of weekly working hours tend to be lower. In recent years, health levels have improved among Latin Americans in their 50s, 60s and 70s - the disease burden among individuals has decreased in countries across the world in recent decades (Murray et al., 2015; UNPD, 2017) 1 . At the same time, most occupations have become less physically demanding (Goos & Manning, 2007; Gordo & Skirbekk, 2013). Better health and less physically demanding job tasks could potentially increase older individuals’ potential to work in a range of occupations. At the same time, pension levels and pension coverage have increased in many countries, which have made retirement a viable opportunity for a greater proportion of the population (Oecd, 2006, 2012; Queisser & Whitehouse, 2006). Further, productivity variation will also have strong effects on labour market outcomes (Skirbekk, 2008, Ichino et al., 2016). In Latin America, the expansion of the social security system, economic development and rising income might have created incentives for more workers to leave the labour market earlier (Queiroz, 2017; Queiroz and de Souza, 2017; Aguila, 2014). However, in general, there are very few studies on the labor supply of older individuals in Latin America and mostly are studies for specific countries (Aguila, 2014; Contreras, de Mello, and Puentes, 2016; Mesa-Lago and Bertranou, 2016; Nava-Bolaños and Ham-Chande, 2014; Queiroz, 2008; 2017). The impact of population aging on public pension programs is affected by the patterns of labor force participation among the elderly. As mortality declines and life expectancy and health conditions improve, one may expect that individuals would stay longer in the labor market, thus 1 It is important to stress that although while life expectancy has risen, cognitive performance has increased (Skirbekk et al., 2013), yet other health indicators show a retrogress trend. For instance, there is an increasing overweight and obesity prevalence in Latin American countries, especially among women and children (Kain et al., 2003; FAO and PAHO, 2017). In this paper, we only use health measures for mortality and disabilities. As we are mainly analyzing older male’s indicators, we believe this feature is not a concern at this point. 3

reducing the fiscal impacts of population aging on public pension programs. However, historically there has been a long-term trend decline in the labor force participation of older workers (Costa, 1998; Burtless and Quinn, 2001; Gruber and Wise, 1999; 2004). Contrary to the past, most workers today enjoy a long and healthy period of retirement. These changes are a paradox since at the same time people are entering the labor force later, because of increasing educational attainment, living longer; they are leaving the labor force at younger ages (Wise, 2010). In Brazil, for example, Queiroz and Ferreira (2016) estimated that retirement duration will double from 1980 to 2025 (rising from 5 to 10 years - representing 20% of life expectancy at age 20, for males). There is a large body of research on how health status affects the labor supply of the elderly (Perez et al, 2006; McGarry, 2004; 2009; Hagan et al., 2009). In general, these studies relate health status to one’s decision to remain or leave the labor force from a micro perspective. Most of the analysis mentioned before is based on one point in time and tries to estimate individual’s probabilities of working/retirement. There is less research work with a historical or a macro perspective. Milligan and Wise (2011) showed that, over time, health conditions in different countries are improving as labor force participation of the elderly declines. In the same vein, Cutler et al. (2013) estimate that elderly labor supply could be substantially higher (15 percentage points) between ages 60 and 65 given current estimates of health status in the USA. The issue of the relation between health and labor supply, however, should be tested in a less developed economy, especially one going over important changes in the population age structure. 2 Background 2.1 Overview of Public Pension Systems in Latin America The characteristics of the public pension programs Latin America might impact on individual behavior as well as on the fiscal budget of the federal government. However, the main feature of the public pension programs in Latin America is the low coverage - % of older men receiving benefits – of the system. Melguizo, Bosch and Pages-Serra (2017) estimated that the retirement 4