Do People Work Longer When They Live Longer?

Abstract

This paper examines the relationship between life expectancy and labor force participation at older ages. It uses information on life expectancy from the U.S. Small-Area Life Expectancy Estimates Project and information on labor force participation from the five-year American Community Survey. Critical components of the analysis include merging the Census-tract-level information from the two data sets and estimating a spatial model of the relationship between life expectancy and labor force participation for men and women ages 55 to 74 that exploits the geographic variation in labor force participation and life expectancy. The main limitation of the study is that our analysis may understate the relationship between life expectancy and labor force participation to the extent that people are unaware of the geographic variation in life expectancy and, consequently, how it might affect their retirement planning.

The paper found that:

• A one-year increase in life expectancy increases labor force participation by about 1 percent for men ages 55 to 74. For women, labor force participation increases by 0.3 percent at ages 55 to 64 and decreases by about the same amount at ages 65 to 74.
• Our non-linear model shows that the effect of life expectancy on male labor force participation increases with age, ranging from 0.8 percent for 55-year-old men to 2.4 percent at age 74. For women, it varies from zero at age 55 to 0.7 at 64. At older ages, the effect for women does not vary with age.

The policy implications are:

• Our findings may help inform the Social Security Trustees’ projections of future labor force participation.
• A spatial perspective may expand the understanding of the relationship between life expectancy and labor force participation.