Physical Job Demand and Early Retirement

Sepideh Modrek & Mark Cullen

14th Annual Joint Conference of the Retirement Research Consortium

August 2, 2012

Motivation

• New policy initiatives recommend raising the full retirement age (FRA) from 67 to 69*

• Longevity differentials by SES & occupational class may make such proposals regressive – One particular difference across occupational classes is

physical job demand– France raised the FRA from 60 to 62, but included

exemptions for physically demanding jobs• Previous studies on physical job demand have

some measurement limitations

* For example, this was a key recommendation of Obama’s federal-deficit commission (12/1/2010)

Study setting

• Ongoing collaboration with a large US aluminum manufacturer, Alcoa

• Multiple sources of administrative data resolves issues of self-report– External report of retirement date, health, wages,

defined benefits pension eligibility and payouts, 401K accumulation, hospitalization/injuries

• Externally rated physical job demand• Higher variation in physical job demand than

general public

Comparison of self-reported vs. expert-reported job demand

0

20

40

percent

Spearman r = 0.22

Selection into physically demanding jobs

• Attraction-selection-attrition cycle– Those who choose to work in high demand jobs

are paid more and may have a higher marginal utility for work

– Those who choose to work in high demand jobs are healthier and are selected on physical ability

Research questions

• Does physical job demand predict earlier retirement once we account for health and wages?

• Is pension eligibility more important for those with higher job demand?

• Does a health shock induce retirement, especially by job demand?

Study sample (58+)

• Reason for leaving Alcoa was only coded between the years 2001-2007

• Male hourly workers born between 1941-1948 working on Jan 1, 1996 at 9 union plants

• Must retire after reaching age 58• Analytic sample has 1500-1700 individuals

Analytic methods

• Discrete time analysis• Duration analysis– Descriptive Kaplan-Meier plots– Cox proportional hazards models– Time-varying Cox proportional hazards models• At each birthday a worker’s eligibility for defined

benefits pension evaluated• If eligible, pension pay out is calculated (based on job

grade, tenure)

Sample characteristics Mean SD Mean

Age of sample at entry 58 MarriedAge at retirement 61.48 1.71 Ever Married 90%Job Demand Race Sedentary/ Light 17% White 89% Medium 53% Health Heavy/Very Heavy 30% Health Score 2000 Q1 19%Job Demand Change Health Score 2000 Q2 21% Transition to lower demand job 8% Health Score 2000 Q3 21%Tenure at entry Health Score 2000 Q4 21%

0-15 years 7% Health Score 2000 Q5 18% 15-20 3% Injury

20-25 13% Injured within 2 years of retirement 9%

25-30 19% Defined Benefits Pension

30-35 32% Eligibility at time of entry 58%

35-40 26% Defined Contributions Pension Accumulation

Wage 401K Participation 86%Final Hourly Wage 18.47 2.00

N=1660

Kaplan-Meier curves

Analysis time =0 is at age 58 and data is right censored at 1/1/2001. For those without a retirement date data is left censored at 1/1/2008.

– Heavy – Medium – Light

– All

Cox models

Research questions

• Does job demand predict earlier retirement once we account for health and wealth?

• Is pension eligibility more important for those with higher job demand?

• How does a health shock induce retirement, especially by job demand?

Time to Retirement (after 1/1/2001) Hazard Ratio (95 % Confidence Interval)

  1 2 3 4 5 6Job Demand (omitted JD=3, Medium) Sedentary/Light (JD=1 or 2) 0.833* 0.787** 0.829** 0.818** 0.8 0.461***

(0.690 - 1.004) (0.645 - 0.960) (0.687 - 1.000) (0.678 - 0.988) (0.470 - 1.362) (0.295 - 0.720) Heavy/Very Heavy (JD=4 or 5) 1.168* 1.168* 1.169* 1.156* 1.208 0.864

(0.985 - 1.387) (0.976 - 1.398) (0.985 - 1.388) (0.973 - 1.372) (0.829 - 1.760) (0.590 - 1.267)Changed to lower demand job after 1/1/96 Transitioned to lower demand 0.580*** 0.579*** 0.585*** 0.586*** 0.585*** 0.583***

(0.444 - 0.758) (0.443 - 0.756) (0.448 - 0.764) (0.448 - 0.765) (0.447 - 0.764) (0.446 - 0.762)Hospitalization (time-varying)Hospitalization 1.066 0.968 1.078 1.085 1.084 1.098

(0.872 - 1.303) (0.722 - 1.297) (0.882 - 1.317) (0.888 - 1.326) (0.887 - 1.325) (0.898 - 1.342)Hospitalization*Low JD

1.628*Hospitalization* High JD (0.967 - 2.740)

1.015Pension (time-varying) (0.638 - 1.616) Defined Benefits Pension Pension Eligible 1.532*** 1.551*** 1.569*** 1.566***

(1.169 - 2.008) (1.185 - 2.031) (1.150 - 2.141) (1.195 - 2.052) Eligible*Low JD 1.025

(0.586 - 1.791) Eligible* High JD 0.948

(0.634 - 1.420) Defined Contributions 401K Participation 0.714*** 0.713*** 0.557***

(0.590 - 0.864) (0.589 - 0.864) (0.430 - 0.723)Participation*Low JD 1.974***

(1.226 - 3.181)Participation* High JD 1.405*

(0.942 - 2.095)Observations 5189 5189 5189 5189 5189 5189Unique Workers 1488 1488 1488 1488 1488 1488Birth Cohort FE YES YES YES YES YES YESLocation FE YES YES YES YES YES YESTenure FE YES YES YES YES YES YES Controls for final wage, injury history, race, health risk score in 2000, and ever-married

Time-varying Cox modelsTime to Retirement (after 1/1/2001) Hazard Ratio (95 % Confidence Interval)  1 2 3 4Job Demand (omitted JD=3, Medium) Sedentary/Light (JD=1 or 2) 0.872 0.631 0.88 0.806

(0.713 - 1.066) (0.182 - 2.187) (0.719 - 1.078) (0.592 - 1.096) Heavy/Very Heavy (JD=4 or 5) 1.077 0.591 1.221** 1.024

(0.890 - 1.303) (0.207 - 1.686) (1.012 - 1.473) (0.762 - 1.375)Changed to lower demand job after 1/1/96 Transitioned to lower demand 0.695** 0.697** 0.568*** 0.566***

(0.518 - 0.932) (0.519 - 0.936) (0.427 - 0.756) (0.425 - 0.753)Hospitalization (time-varying)Hospitalization 1.181 1.183 1.051 1.047

(0.952 - 1.464) (0.954 - 1.467) (0.842 - 1.312) (0.838 - 1.308)Pension (time-varying) Defined Benefits Pension Pension Benefits (100$/month) 1.516*** 1.495***

(1.417 - 1.623) (1.391 - 1.607)Benefit*Low JD 1.02

(0.945 - 1.100) Benefit* High JD 1.036

(0.975 - 1.101) Defined Contributions Annuitized Monthly Values (100$) (3% rate of return for 25 yrs)

1.041*** 1.026*

(1.018 - 1.064) (0.995 - 1.057)Annuity*Low JD 1.018

(0.964 - 1.075)Annuity*High JD 1.037

(0.990 - 1.086)Observations 3780 3780 4586 4586Unique Workers 1211 1211 1293 1293Birth Cohort FE YES YES YES YESLocation FE YES YES YES YESTenure FE YES YES YES YES Controls for final wage, injury history, race, health risk score in 2000, and ever-married

Summary of findings

• Workers in higher demand jobs do retire earlier, once we account for wage differentials– The estimated difference is about 6 months

• Pension eligibility and pay-outs do not seem to be more important for those with higher job demand

• Hospitalizations/injuries do induce retirement, but limited evidence of difference by job demand

Next steps

• Refine our models to ensure robustness by adding more time-varying variables (wage)

• Examine relationship between physical job demand and disability retirement at a younger age groups (<58)

Policy implications• Depends on policy goal– Macroeconomic goal to increase retirement ages

for all and without increasing disability claims• Inform and icentivize employers to support the

transition to lower demand jobs while acknowledging the wage incentives for workers to stay in high demand jobs

Policy implications• Depends on policy goal– Goal to reduce or compensate for social disparities

Survival by employee type

Policy implications• Depends on policy goal– Goal to reduce or compensate for social disparities• SSA could consider exemptions for those in high

demand fields as it raises FRA to compensate for higher risk endured• Small selected group of workers who are compensated

for higher risk, so no social security exemptions required • Depends on whether we believe wages fully

compensate for risk

Thank you!