CAPABILITY, HEALTH, AND THE LABOUR MARKET – THE RETIREMENT DECISION

Abstract

The time of retirement is analyzed in a theoretical framework taking capability and health into account. Capability if formalized as a stock characteristic which determines the attained amounts of a composite good which yields utility. The model is purposely simple and comprises one choice variable – the time of retirement. The core assumption is that inherited capability influences the rate of evolvement of health, and vice versa, and that the rates of change of the stocks differ between the pre- and post-retirement periods. The optimal retirement timing decision is characterized and the effects of the model’s exogenous variables on this decision are examined. We derive refutable comparative statistics results with respect to the model’s exogenous variables, and, for example, show – for a specified version of the model – how the timing of retirement depends on the inherited amounts of capability and health.