Discussion paper

DP17713 Life-Cycle Labor Supply and Physiological Aging across Countries

We construct a cohort-based frailty index for 181 countries over the period 1990-2019. We use this macro measure of physiological aging to estimate the impact of deteriorating health on labor force participation. Our three-dimensional panel framework, in which the unit of observation is a cohort in a given country at a given age, allows us to control for a range of unobserved factors. Our identification strategy further exploits a compensating law of physiological aging to account for reverse causality. We find a negative effect of physiological aging on labor market participation: a one percent increase in the frailty index leads to a reduction of labor force participation of about 0.6 percentage points. Since health deficits (in the frailty index) are accumulated at a rate of about 3 percent per year of life, almost all of the age-related decline in labor force participation can be motivated by deteriorating health.

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Citation

Dalgaard, C, C Hansen and H Strulik (eds) (2022), “DP17713 Life-Cycle Labor Supply and Physiological Aging across Countries”, CEPR Press Discussion Paper No. 17713. https://cepr.org/publications/dp17713