2019 RDRC Meeting: Latent Work Capacity and Retirement Expectations

Published: 2019


Understanding how health decline influences retirement decisions is fundamental for the design of targeted policies that encourage longer working lives. While there is wide agreement of the relevant role of age-related health decline in retirement decisions, the process of how health deterioration influences labor supply remains a black box.  We develop a new method to assess individuals’ latent work capacity. To do this, we construct a one-dimensional summary measure of individuals’ latent work capacity by comparing individuals’ own ability levels to the minimum levels required to perform different jobs, using a unique data set containing individuals’ ratings of 52 dimensions of abilities included in the Occupational Information Network (O*NET) database. We assess the validity of our measure by studying how it changes by key sociodemographics such as age and education. We present preliminary estimates of the role of latent work capacity in determining both current and future labor supply decisions.

Key Findings